ITEM 1A – RISK FACTORS 22
ITEM 1B – UNRESOLVED STAFF COMMENTS 41
ITEM 2 – PROPERTIES 41
ITEM 3 – LEGAL PROCEEDINGS 41
ITEM 4 – MINE SAFETY DISCLOSURES 41
ITEM 6 – [RESERVED] 43
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 53
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 53
ITEM 9A – CONTROLS AND PROCEDURES 53
ITEM 9B – OTHER INFORMATION 54
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. 54
PART III 55
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 55
ITEM 11 – EXECUTIVE COMPENSATION 59
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES 64
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 66
SIGNATURE 71
i
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal
year ended December 31, 2021 (“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;
● 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
Summary of Significant Risk Factors
The following is a summary
of significant risk factors and uncertainties that may affect our business, which are discussed in more detail below in “Part I—Item
1A—Risk Factors” included in this Annual Report on Form 10-K:
Risks Related to Our Business
Risks Related to Doing Business in the PRC
iii
Risks Relating to Our Corporate Structure
Risks Related to Our Common Stock
Other risks and uncertainties, including those listed under “Part
I—Item 1A—Risk Factors”.
These factors should not be construed as exhaustive, and should be
read with the other cautionary statements, and other information in this Annual Report on Form 10-K, and our other filings
with the SEC.
iv
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 People’s Republic
of China (“PRC” or “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 technology business. The main business of the Company includes
an online shopping platform, Chain Cloud Mall (“CCM”), which is based on blockchain technology; supply chain financing services
and trading, financial technology service business and the application and development of blockchain-based technology in financial technology
services. The Company has also expanded into financial services and cryptocurrency market data and information service businesses.
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.
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.
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 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 September 1, 2021, FTFT UK Limited, a company
organized under the laws of United Kingdom and a wholly owned subsidiary of the Company (“FTFT UK”) entered into a Share
Purchase Agreement with Rahim Shah, a resident of United Kingdom (“Seller”) to acquire 100% of the issued and outstanding
shares (the “Sale Shares”) of Khyber Money Exchange Ltd., which 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 are waiting for the approval by the FCA before formal closing
of the transaction.
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 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 the ability to distribute or redeem e-money and provide certain financial
services on behalf of an e-money institution (registration number 903050).
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). 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.
1
The Company currently
has nine 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, 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 and FTFT SuperComputing Inc. a company incorporated under the laws of Ohio.
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 the date of
this report is set forth in the diagram:
Contractual
Arrangements
Equity
Interest
2
Our 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.
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.
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 its 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 the VIE and its 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 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.
3
Agreements that Provide us with Effective Control over our VIE
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 our VIE (E-Commerce Tianjin) based in China. 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.
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 nine 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, 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.
4
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 is following the guidelines of local authorities as it prioritizes the health and safety
of its employees, contractors, suppliers and business partners. Our offices in China were closed and the employees worked from home at
the end of January until late March 2020 and was closed again in January 2022 due to the COVID-19 outbreak. 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. Although China has already begun to recover from the outbreak of COVID-19, there
are still outbreak in various cities and provinces due to new variants, including the recent outbreak of Omicron variant in Xi’an
city, Hong Kong and Shanghai city in 2022 which have resulted quarantines, travel restrictions, and temporary closure of office buildings
and facilities in these cities. 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 still puts 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. 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 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.
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 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 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.
5
On September 1, 2021, FTFT UK entered into
a Share Purchase Agreement with Rahim Shah, a resident of United Kingdom (“Seller”) to acquire 100% of the issued and outstanding
shares (the “Sale Shares”) of Khyber Money Exchange Ltd., which 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 are waiting for the approval by the FCA before 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 FTFT UK 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 the ability to distribute or redeem e-money and provide certain financial
services on behalf of an e-money institution (registration number 903050).
The Company is in the
process of transition and developing its financial technology related business, including asset management, supply chain financial
services, digital banking 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, 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.
6
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 select the customers and suppliers that
have good credit and reputation.
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.
7
(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, 2022, NTAM has approximately US$260
million assets under its management.
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.
8
(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 and Shanxi Lu’an Environmental Protection Energy Development Co., Ltd.
(a public company listed on Shanghai Stock Exchange).
(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.
Industry and Principal Markets
E-Commerce Market in China
According to emarketer data, the global e-commerce
market is expected to reach US$4.89 trillion in 2021. China is leading the global e-commerce market, with online sales of nearly $2.8
trillion in 2021, 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$843 billion in 2021. In addition, China’s digital consumers reached 792.5 million, accounting
for 33.3% of the global total, ranking first in the world. In terms of retail, 52.1% of China’s retail transactions come from e-commerce,
and China will become the first country in history where online retail sales exceed offline retail sales.
9
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 is expected reach RMB 29 trillion(approximately
US$4.46 trillion) in 2022 according to the Overview Survey and Development Strategy Research Consulting Report for China Supply Chain
Finance Industry 2021-2025 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 2022 is expected to be the same as that in 2021, according to the Overview Survey and Development Strategy Research
Consulting Report for China Supply Chain Finance Industry 2021-2025 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.
10
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.
11
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 intend to purchase internet products and services and Data Processing Operators (“DPOs”) 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. Our e-commerce platform currently
is not a cyberspace operator with personal information of more than 1 million users or has activities that affect or may affect national
security.
Regulations Relating to E-Commerce
In January 2014, State Administration for Market
Regulation or SAMR (formerly known as State of Administration of Industry and Commerce) 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