10-K
1
f10k2020_futurefintech.htm
ANNUAL REPORT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition
Period from _________ to _________
Commission File Number 001-34502
Future FinTech Group Inc.
(Exact name of registrant as specified in
its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Americas Tower, 1177 Avenue of The Americas Suite 5100, New York, NY 10036
(Address of principal executive offices) (Zip Code)
Registrant’s Telephone Number: 888-622-1218
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.001 par value Nasdaq Capital Market
Securities registered pursuant to Section
12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in rule 405 of the Securities Act. Yes ☐
No ☒
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s
knowledge, in definitive proxy statement or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes ☐ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐
No ☒
The
aggregate market value of voting and nonvoting stock held by non-affiliates of the registrant, based upon the closing price of $1.16
per share for shares of the registrant’s Common Stock on June 30, 2020, the last business day of the registrant’s most recently
completed second fiscal quarter as reported by the NASDAQ Capital Market, was approximately $23.76 million.
The number of shares of Common Stock outstanding as of April 12, 2021 was 65,286,192.
FUTURE FINTECH GROUP INC.
Annual
Report on Form 10-K for Fiscal Year Ended December 31, 2020
PART I 1
ITEM 1 – BUSINESS 1
ITEM 1A – RISK FACTORS 14
ITEM 1B – UNRESOLVED STAFF COMMENTS 29
ITEM 2 – PROPERTIES 29
ITEM 3 – LEGAL PROCEEDINGS 29
ITEM 4 – MINE SAFETY DISCLOSURES 29
ITEM 6 – SELECTED FINANCIAL DATA 30
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 39
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 39
ITEM 9A – CONTROLS AND PROCEDURES 40
ITEM 9B – OTHER INFORMATION 40
PART III 41
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 41
ITEM 11 – EXECUTIVE COMPENSATION 44
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES 49
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 52
SIGNATURE 56
i
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the
fiscal year ended December 31, 2020 (“Annual Report”) of Future Fintech Group, Inc. (together with our direct or indirect
subsidiaries, “we,” “us,” “our”, “the Company” or “Future FinTech”)
includes forward-looking statements regarding, among other things, Future FinTech’s plans, strategies and prospects,
both business and financial. Although Future FinTech believes that its plans, intentions and expectations reflected in or suggested
by these forward-looking statements are reasonable, Future FinTech cannot assure you that we will achieve or realize these plans,
intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions including,
without limitation, the factors described under “Risk Factors” from time to time in Future FinTech’s filings
with the SEC. Many of the forward-looking statements contained in this presentation may be identified by the use of forward-looking
words such as “believe”, “expect”, “anticipate”, “should”, “planned”,
“will”, “may”, “intend”, “estimated”, “aim”, “on track”,
“target”, “opportunity”, “tentative”, “positioning”, “designed”, “create”,
“predict”, “project”, “seek”, “would”, “could”, “continue”,
“ongoing”, “upside”, “increases” and “potential”, among others. Important factors
that could cause actual results to differ materially from the forward-looking statements we make in this presentation are set forth
in other reports or documents that we file from time to time with the SEC, and include, but are not limited to:
● fluctuations in the supply of products from our suppliers;
● the expected growth of the online retail industry in China
● our ability to attract and retain customers;
● impact of competitive activities on our business;
● the result of future financing efforts;
● risks associated with the adverse effects of COVID-19 pandemic globally;
● other economic, financial and regulatory factors beyond the Company’s control.
Any or all of our forward-looking statements
in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown
risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially
as a result of various factors, including, without limitation, the risks outlined under “Item 1A. Risk Factors” in
this Annual Report. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained
in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.
We undertake no obligation to update forward-looking
statements to reflect subsequent events, changed circumstances or the occurrence of unanticipated events except as required by
law.
ii
PART I
ITEM 1 – BUSINESS
Overview
Future FinTech is a holding company incorporated
under the laws of the State of Florida. 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 the PRC.
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 that integrates blockchain
and internet technology. The main business of the Company includes an online shopping platform, Chain Cloud Mall (“CCM”),
which is based on blockchain technology; a cross-border e-commerce platform (“NONOGIRL”); a blockchain-based application
incubator; and technical service and support for real name and blockchain based assets and their operating entities;
and the application and development of blockchain-based e-commerce technology and financial technology. The Company is also expanding
into financial services.
Chain Cloud Mall adopts a “multi-vendor
hosted stores + platform self-hosted stores” model. The platform supports various marketing methods, including point rewards programs,
coupons, live webcasts, game interaction, and social media sharing. Besides the blockchain-powered features, CCM is also fully equipped
with the same functions and services that other Chinese leading traditional e-commerce platforms provide.
Based on blockchain technology, CCM is
established to transform the relationship between companies and consumers from traditional selling and buying relationships to
a value-sharing relationship. The platform will fairly distribute the benefit of the entire mall to users who engaged in the promotion,
development, and consumption based on their contributions to the platform. The members of CCM are not only consumers and entrepreneurs
but also participants, promoters and beneficiaries. The CCM shared shopping mall platform is designed to be a block-chain based
shopping mall for merchants and goods, not the exchange of digital currencies, and it currently only accepts payment from credit
cards, Alipay and WeChat.
Chain Cloud Mall is an enterprise and customer
interactive and comprehensive shopping and sales service platform. It is an open network promotion system with a blockchain based
anti-counterfeit system including referral point and discount points issuance and settlement. The new business model creates a
completely new source of data traffic for enterprises on our platform.
Merchants on the Chain Cloud Mall
issue their own blockchain points and anti-counterfeiting QR codes. Every product comes with unique anti-counterfeiting QR codes
on the label. Customers collect the points issued by the merchants by scanning products with their mobile phones on the anti-counterfeiting
QR code. These QR codes are generated by blockchain system of Chain Cloud Mall and provided to merchants. The successful collection
of the merchant points confirms that the authentication of product from such enterprise. The Chain Cloud Mall records and provides
Chain Cloud Mall 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 Chain Cloud Mall and helps the Company generate greater value.
NONOGIRL started its trial operation in
March 2020 and formally launched in July 2020. It is a cross-border e-commerce platform, which aims to build a new s2b2c (supplier
to business and consumer) outsourcing sales platform dominated by social media influencers. It is aimed at the growing female consumer
market, with the ability to broadcast, short video, and all forms communication through the platform. It can also create a sale
oriented sharing ecosystem with other major social media used by customers, etc.
The Company currently has three direct
wholly-owned 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, and GlobalKey Shared Mall
Limited, a company incorporated under the laws of Cayman Islands (“GlobalKey Shared Mall”).
SkyPeople Foods Holding Limited (“SkyPeople
BVI”), a company organized under the laws of the British Virgin Islands, 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 holds 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) has eleven
subsidiaries in the PRC, which are 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 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. SkyPeople BVI had no operational assets or business after the transfer and the Company
dissolved SkyPeople BVI on July 27, 2020.
Future FinTech (HongKong) Limited (“FinTech
HK”) holds 100% of the equity interests of Future Commercial Management Co., Ltd. (formerly known as China Agricultural Silkroad
Finance Lease Ltd.), Future Digital Tech (Xi’an) Co., Ltd. (“Digital Tech Xi’an”) , GuangChengJi (Shanghai)
Industrial Co., Ltd, Future Commercial Management (Beijing) Co., Ltd. and Future Commercial Group Co., Ltd. Digital Tech Xi’an
holds 100% of the equity interest of Chain Future Digital Tech (Beijing) Co., Ltd. Future Commercial Group Co., Ltd. and Future
Commercial Management Co., Ltd. holds 90% and 10% of the equity interests of Globalkey Supply Chain Co,. Ltd. respectively. DigiPay
FinTech Limited holds 60% equity interest of DCON DigiPay Limited, a company incorporated in Japan.
GlobalKey Shared Mall holds 100% equity
interests of Chain Cloud Mall Network and Technology (Tianjin) Co., Limited (“CCM Network”) and QR (HK) Limited. CCM
Network holds 80% equity interest of Chain Cloud Mall Logistics Center (Shaanxi) Co., Limited (“CCM Logistics”) and
90% equity interest of HeDeTang Farm Products Trading Market (Mei County) Co., Ltd. (“HeDeTang Farm”) CCM Logistics
owns the remaining 10% equity interest of HeDeTang Farm and 100% equity interest of GlobalKey Supply Chain Limited. On July 24,
2020, the Company’s Board of Directors decided to close the business operation of CCM Logistics and HeDeTang Farm.
On November 12, 2020, CCM Network entered
into an Equity Transfer Agreement with Xi’an Yishengkang Information Technology, Ltd. (“Xi’an Yishengkang”),
an unrelated third party, pursuant to which CCM Network agreed to sell 90% of total issued and outstanding capital stock of HeDeTang
Farm that it owned to Xi’an Yishengkang for RMB9,000 (approximately $1,324). On the same date, CCM Logistics entered
into an Equity Transfer Agreement with an individual and unrelated third party, Liyuan Ying, pursuant to which CCM Logistics agreed
to sell 10% of total issued and outstanding capital stock of HeDeTang Farm that it owned to Liyuan Ying for RMB1,000 (approximately
$147).
On July 31, 2019, CCM Network, Chain Cloud Mall E-commerce
(Tianjin) Co., Ltd., a limited liability company incorporated under the laws of the China (the “E-commerce Tianjin”), and
Mr. Zeyao Xue and Mr. Kai Xu, citizens of China and shareholders of E-commerce Tianjin, entered into the following agreements, or collectively,
the “Variable Interest Entity Agreements” or “VIE Agreements,” pursuant to which CCM 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, our Chairman of the Board. Mr. Kai Xu was the Chief Operating Officer of the Company and currently is the Deputy
General Manager of FT Commercial Group Ltd. , a wholly owned subsidiary of the Company.
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 (“WOFE”). 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.
The following is a summary of the currently
effective contractual arrangements relating to E-commerce Tianjin.
Contractual Arrangements with Our Consolidated
Affiliated Entity and Its Respective Shareholders
Our contractual arrangements with our VIE
and their respective shareholders allow us to (i) exercise effective control over our VIE, (ii) receive substantially all of the
economic benefits of our VIE, and (iii) have an exclusive option to purchase all or part of the equity interests in our VIE when
and to the extent permitted by PRC law.
As a result of the contractual arrangements
with our VIE, we are regarded as the primary beneficiary of our VIE, and we treat them and their subsidiaries as our consolidated
affiliated entities under U.S. GAAP. We have consolidated the financial results of our VIE in our consolidated financial statements
in accordance with U.S. GAAP.
Agreements that Allow us to Receive Economic Benefits from
our VIE
Exclusive Technology Consulting and
Service Agreement.
Pursuant to the Exclusive Technology Consulting
and Service Agreement, CCM 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, expenses and taxes 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.
Agreements that Provide us with Effective Control over our
VIE
Exclusive Purchase Option Agreement.
Pursuant to the Exclusive Purchase Option
Agreement, Mr. Zeyao Xue and Mr. Kai Xu granted to CCM 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.
Agreements that Provide us with the Option to Purchase the
Equity Interests in and Assets of our VIE
See Exclusive Purchase Option Agreement
above
Spousal Consent Letters. The
spouse of Mr. Kai Xu (Mr. Zeyao Xue is not married), 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.
Impact of COVID-19 on our Business
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China, the pandemic quickly spread to many provinces, autonomous regions, and cities all
over the China and other parts of the world. COVID-19 has materially and adversely affected our business, especially during the
first six months of 2020. In early 2020, Chinese government took emergency measures to combat the spread of the virus, including
quarantines, travel restrictions, and the temporary closure of office buildings and facilities in China.
Substantially all of our revenues are generated
in China. In response to the evolving dynamics related to the COVID-19 outbreak, the Company is following the guidelines of local
authorities as it prioritizes the health and safety of its employees, contractors, suppliers and business partners. Our offices
in China was closed and all of the Company’s employees worked from home from Chinese New Year at the end of January 2020
until late March 2020. Other businesses in China started reopening around the end of the first quarter as well, and more and more
businesses, transportation, logistic and marketing activities have gradually resumed since then. Our offices currently are in normal
operation. However, quarantines, travel restrictions, and the temporary closure of office buildings have negatively impacted our
business during the outbreak. Our suppliers have negatively been affected, and could continue to be negatively affected in their
ability to supply and ship products to our customers by any further outbreak or resurgence of COVID-19 in China. Our customers
that are negatively impacted by the outbreak of COVID-19 may reduce their budgets to purchase products and services from us, which
may materially adversely impact our revenue. The business operations of the third parties’ stores on our platform have been
and could continue to be negatively impacted by any further outbreak or resurgence of COVID-19, which may negatively impact their
operations and business, which may in turn adversely affect the business of our platform as a whole as well as our financial condition
and operating results. The outbreak has had and might continue to have disruption to our supply chain, logistics providers, or
customers if there is a resurgence of COVID-19 in China, which could materially adversely impact our business and results of operations,
including causing our suppliers to cease manufacturing products for a period of time or materially delay delivery to us and customers,
which may also lead to loss of customers, as well as reputational, competitive and business harm to us. The Company’s promotion
strategy for our e-commerce platforms 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 made the promotion
strategy for CCM Shopping Mall and NONOGIRL difficult to implement, which have caused the decrease in the sales and enrollment
of new members. Some of our customers, contractors, suppliers and other business partners are small and medium-sized enterprises
(SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to an epidemic outbreak and slowing
macroeconomic conditions. If the SMEs that we work with cannot weather the COVID-19 and the resulting economic impact, or cannot
resume business as usual after a prolonged outbreak, our revenues and business operations may be materially and adversely impacted.
The 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 customer spending in
our shopping mall.
While the potential
economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic may 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 could materially affect our business
and the value of the Company’s 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 adversely affected. Any future 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 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% and 96.4% to the total revenue for fiscal 2020 and 2019 respectively.
On February 27, 2020, the Company completed
the transfer of its ownership of HeDeTang HK to New Continent International Co., Ltd. (the “Buyer”), a company incorporated
in the British Virgin Islands, pursuant to a Share Transfer Agreement (the “Agreement”) entered on September 18, 2019.
Pursuant to the terms of the Agreement, the Buyer purchased 100% ownership of HeDeTang HK. (the “Sale Transaction”)
Following the completion of the Sale Transaction,
the main business operations of the Company are focused on our real-name and membership-based blockchain shared shopping mall platform
and cross-border e-commerce platform NONO Girl which was formally launched in July 2020.
As the Company sold its juice related segment,
the financial position and operating results of HeDeTang HK have been classified as discontinued operations within the accompanying
consolidated financial statements of the Company.
The main business of the Company includes an online
shopping platform, Chain Cloud Mall (“CCM”), which is based on blockchain technology; a cross-border e-commerce platform (“NONOGIRL”);
a blockchain-based application incubator; and technical service and support for real name and blockchain based assets and their operating
entities ; and the application and development of blockchain-based e-commerce technology and financial technology. The Company is also
expanding into financial services business.
On July 13, 2020, the Company entered into a
Share Exchange Agreement with Joy Rich Enterprises Limited (“Joy Rich”) to acquire 90% of the issued and outstanding shares
of Nice Talent Asset Management Limited (“NTAM”), a Hong Kong-based asset management company, from 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. The transaction was expected to close before the end of 2020. However,
the closing process was impacted by both the Covid-19 global pandemic and slow regulatory approval from Hong Kong regulatory agencies.
Consequently, there had been delayed progress as to the closing of the acquisition. The closing date as stipulated in the Agreement was
no later than December 31, 2020, but since July 2020 there have been changes in NTAM’s business performance as well as the price
of the Company’s common stock. On April 9, 2021, the parties entered into the First Amendment (the “Amendment”)
to the Share Exchange Agreements. Pursuant to the Amendment, the parties agree to amend the purchase price and certain earn-out terms
as follows: (i) the aggregate purchase price for Nice Shares shall be HK$144,000,000 (the “Purchase Price”) and it shall
be paid in the shares of common stock of the Company (the “Company Shares”); (ii) 60% of the Purchase Price or HK$86,400,000
shall be paid in the shares of common stock of the Company based on 95% of the closing price of the Company’s common stock listed
on Nasdaq Stock Exchange on the date prior to the date of the Amendment and the foreign exchange rate between HK$ and US$ shall be 7.7:1;
(iii) 20% of Purchase Price shall be paid in the shares of common stock of the Company if Nice achieves an Earnings Before Interest and
Taxes (the “EBIT”) of HK$14,000,000 (the “2021 EBIT Goal”), as evidenced in its 2021 audited financial statements
for fiscal year ended December 31, 2021 audited by the auditor of the Company (the “2021 Earn-Out Shares”); (iv) the final
20% of Purchase Price shall be paid in the shares of common stock of the Company if Nice achieves an EBIT of HK$20,000,000 (the “2022
EBIT Goal”), as evidenced in its 2022 audited financial statements for fiscal year ended December 31, 2022 audited by the auditor
of the Company (the “2022 Earn-Out Shares”); (v) if Nice does not achieve the EBIT Goal for a given year, the shortfall between
EBIT Goal and the actual EBIT for that year shall be the EBIT Shortfall (the “EBIT Shortfall”) and the amount of an EBIT
Shortfall Fee that equals to 10 (ten) times of the EBIT Shortfall amount (the “EBIT Shortfall Fee”) shall be paid in cash
by the Seller to the Buyer even though such year’s Earn-Out Shares shall still be issued in full to the Seller.
On February 26, 2021, Future FinTech Group
Inc. (the “Company”) and Future Supply Chain Co., Ltd., a wholly owned subsidiary of the Company and a company incorporated
under the laws of China entered into a Share Exchange Agreement (the “Agreement”) with Sichuan Longma Electronic
Technology Co. Ltd., a company incorporated under the laws of China (“Seller”) and Sichuan Ticode Supply Chain Management
Co., Ltd., a company incorporated under the laws of China (“Ticode”). Pursuant to the Agreement, the Company, through the Buyer will acquire 60% of the equity interest of Ticode from
the Seller in exchange for 7,789,882 shares of common stock of the Company. Ticode
provides financial services for the supply chain industry. Ticode’s business includes procurement agent services, sales agent
services, inventory pledged loan services, and supply chain financing intermediary services. Ticode’s supply chain related services
cover electronic components, technology services to supply chain data management for the electronics industry, and supply chain
management for various electronic components and materials, metal materials and raw plastic materials.
On March 18, 2021, the Company filed Articles of Amendment (the “Amendment”)
with the Secretary of State for the State of Florida to amend its Second Amended and Restated Articles of Incorporation to increase the
amount of authorized shares of its common stock, par value $0.001 per share, from 60,000,000 to 300,000,000. The Amendment was approved
by the Company’s Board of Directors (the “Board”) on February 12, 2021 and by shareholders holding a majority of the
Company’s issued and outstanding capital stock on February 12, 2021. The Amendment does not affect the rights of the Company’s
shareholders and was effective immediately upon filing
Chain Cloud Mall (CCM)
The Company has transformed its business
from fruit juice manufacturing and distribution to a real-name and membership-based blockchain e-commerce platform that integrates
blockchain and internet technology.
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 and distinguishes itself by utilizing the automatic value
distribution system of blockchain and sharing the value of the platform to all the participants in the system.
On June 1, 2019, CCM v2.0 was launched.
Compared to the 1.0 version, CCM v2.0 has a wider variety of product categories, easier user interface, more transparent information,
more stable operations, a higher security level, and faster logistics.
On May 1, 2020, CCM v3.0 was launched.
The latest CCM v3.0 creates a new value cycle system of online shopping mall with the real-name blockchain system with following
characteristics:
1. Blockchain anti-counterfeiting
2. Blockchain points settlement leads to secondary data traffic
3. Points promotion system
4. Member community system to build a high value community
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.
Based on blockchain technology, CCM is
established to transform the relationship between companies and consumers from a traditional selling and buying relationship to
a value-sharing relationship. The platform fairly distributes the benefits of the entire mall to users who engage in promotion,
development, and consumption based on their contributions to the platform. The members of CCM are not only consumers and entrepreneurs
but also participants, promoters and beneficiaries.
CCM has attracted a growing base of users,
including members and non-members. These users are actively purchasing products on the platform. Members are the key participants
on CCM and drivers of its growth. Our members typically pay to gain access to a dedicated app that provides access to a curated
selection of products, exclusive membership benefits, and features, including discounted prices and point rewards. Members can
refer others to become members and are rewarded for doing so. Members can also promote products on various social platforms and
are rewarded if those users purchase our products.
Currently, there are three kinds of membership
programs with different membership Fees. The members are required to log onto CCM app or web portal in order to download some of
their rewarding points each day. The member could download all his/her rewarding points if he/she logs onto the app or web portal
for at least 200 days within the membership valid period which is 365 days. Members must renew their membership before expiration
to continue earning points and enjoy the discounts. A non-member user can purchase products from the platform but does not enjoy
the above-mentioned benefits.
Membership benefits are as follows:
1) Receive a merchandise gift package
2) Exclusive discounts for merchandise sold on the CCM Web and App
3) Receive CCM-Points upon a successful new member and product referral
CCM-Points can be used as coupons for the member’s future
purchases on our app and website.
CCM had approximately 6,687 and 6,401 users
as of December 31, 2020 and December 31, 2019, respectively.
We currently generate revenues primarily
from fixed membership fees and selling products on our platform to users, including both members and non-members. Membership revenue
is recognized when a member registers and makes his/her first order on CCM app or web portal.
For the year ended December 31, 2020, approximately
$0.34 million was recognized for fixed membership fees revenue from 5,362 members and approximately $9,159 for merchandise sales
revenue from orders on the Company’s own sales platform, which in total account for 2.47% of our total revenue.
Competition and our Competitive Advantages
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 compete primarily on the basis of the
following factors: (i) our ability to attract and retain a large number of members and other users and establish strong community
bonding and maintain member loyalty through interaction effectively and reward programs; (ii) our shared shopping platform that
enables users to buy products easily; (iii) strong fulfillment capabilities, including logistics and online payment, (iv) advanced
technology infrastructure, and (v) reliable and flexible supply chain and strong manufacturing partner network.
We have a unique real-name and membership–based
blockchain e-commerce shopping platform that integrates blockchain, internet technology and distinguishes itself by utilizing the
automatic value distribution system of the blockchain and sharing the value of the platform to all the participants in the system.
In addition to providing value and convenience to our members, we reward them for referring new members and promoting our products
and helping to generate transactions. Based on blockchain technology, CCM is established to transform the relationship between
companies and consumers from traditional selling and buying relationship to a value-sharing relationship. The platform will fairly
distribute the benefit of the entire mall to users who engage in promotion, development, and consumption based on their contributions
to the platform.
Our latest CCM v3.0 creates a new value cycle system of online
shopping mall with the real-name blockchain system with following characteristics:
1. Blockchain anti-counterfeiting
Using
real-name blockchain technology to carry out anti-counterfeiting for products produced by the enterprises. The essence of anti-counterfeiting
is to determine the person responsible for the product. Using real-name blockchain system, it provides the assurance to our customers
to the authentication of the products they purchase and solve the problem of counterfeiting products in online shopping mall.
2. Blockchain points settlement leads to secondary data traffic
Blockchain points are also discount
coupons for merchants, guiding customers to the platform of the merchants, and provide them discounts when purchasing. This process
is called secondary data traffic. It is important to maintain old customers. Blockchain anti-counterfeiting technology through
scanning of QR codes by the customers helps companies identify such customers and allows them to systematically maintain contacts
with such customers.
3. Points promotion system
Points promotion
system brings secondary data traffic comes with volume and high turnover ratio. All such sales are directed to the merchants’
stores when customers possess and use merchants’ coupons. With a high level of user stickiness, customers are likely to purchase
products again and collect more blockchain points.
4. Member community system to build a high value community
Anti-counterfeiting technology
plus the Company’s secondary data traffic platform have created great value for the merchants that have stores on our platform.
By gathering all loyal customers to a merchant’s store, it can build a community of people with the common interest. Through
the community, the merchant can form a self-organizing system with customer groups to maximize the interests of such merchant.
We believe that our management team, which
includes Yongke Xue, our Chairman of Board of Directors, Shanchun Huang, Chief Executive Officer, Ming Yi, our Chief Financial
Officer, Yang Liu, our Chief Operation Officer and Weicheng Pan, our Chief Strategy Officer, and a seasoned team of senior managers
with significant experience in the areas of operations, marketing, technology and finance.
Industry and Principal Markets
E-commerce Industry and Social E-commerce Platforms in China
According to a PR Newswire report, the total
transaction volume of China’s e-commerce market reached $1.87 trillion in 2020, and the market is expected to grow by 70 percent by
2024. In 2020, China has become the world’s largest mobile e-commerce market, with a total transaction volume of $1.18 trillion,
three times that of the United States, the second largest mobile e-commerce market. The e-commerce market is expected to reach $3.17
trillion by 2024.
Blockchain Technology and Digital Economy
Development
In 2016, the China State Council included
blockchain technology as a new technology and started the promotion and development of blockchain technology and applications.
Since then, the central and local governments have issued relevant supervision and support policies to support blockchain technology
and industry development to enable commercialization. In April 2020, the Chinese Ministry of Industry and Information Technology
(“MITT”) announced that it will strongly support technological innovation and industrial applications such as blockchain
technology. Blockchain technology is now widely used by Chinese leading financial organizations and institutions. In early 2020,
Alibaba announced its integration of a full-link traceability blockchain system into its importation e-commerce platform, Kaola.
2020 is a year of China-ASEAN digital economic
cooperation. Leading high-quality development with a credible digital economy is becoming a new highlight in the development of
cooperation between China and ASEAN countries. In the field of digital economy, China and ASEAN countries have a good foundation
and environment of cooperation. We believe it is a good time to create application demonstration projects through the construction
of digital infrastructure, support for 5G networks, the advancement of artificial intelligence, the initiation of innovative applications
of blockchain and other emerging technologies.
At present, ASEAN countries hope to keep
up with the development of the digital economy in order to start the digitalization of border markets, e-commerce, cross-border
settlement, smart logistics, supply chain finance and traditional industries as soon as possible. As a basic and systematic technology
and facility, the application of blockchain is expected to become an important force for future industrial revolution.
Marketing and Sales
For our CCM shared shopping mall, we incentivize
our members to recommend and market products through their own social networks and communities. Customers tend to find recommendations
by influencers, including friends and families, who customers tend to deem trustworthy. Members who promote products are rewarded
if other users purchase our products based on that promotion.
Government Regulations
Regulations Relating to E-Commerce
In January 2014, the former State of Administration
of Industry and Commerce (which has been merged into State Administration for Market Regulation or SAMR) adopted the Administrative
Measures for Online Trading, or the Online Trading Measures, which took effect in March 2014. Under the Online Trading Measures,
e-commerce platform operators are required to examine, register and archive the identity information of the merchants applying
for access to their platforms as sellers, and verify and update such information regularly. The Online Trading Measures also provide
that e-commerce platform operators must make publicly available (i) the link to or the information contained in the business licenses
of the merchants, in the case of business entities, or (ii) a label confirming the verified identity of the merchants, in the case
of individuals. A consumer is entitled to return the commodities within seven days after receipt of the commodities without giving
a reason, except for the following commodities: customized commodities, fresh and perishable commodities, audio-visual products
downloaded online or unpackaged by consumers and computer software and other digital commodities, and newspapers and journals that
have been delivered. E-commerce platform operators must, within seven days upon receipt of the returned commodities, provide full
refunds to consumers. In addition, operators are prohibited from setting forth provisions in contracts or other terms that are
not fair or reasonable to consumers such as those excluding or restraining consumers’ rights, relieving or exempting operators’
responsibilities, and increasing the consumers’ responsibilities, or conducting transactions in a forcible manner taking
advantage of contractual terms or technical means.
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%.
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