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, 2022
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 Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.001 par value FTFT 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. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 $0.42 per share for shares of the registrant’s Common Stock on June 30, 2022,
the last business day of the registrant’s most recently completed second fiscal quarter as reported by the NASDAQ Capital Market,
was approximately $23.39 million. (The Company effected a 1 for 5 reverse stock split on February 1, 2023)
The number of shares of Common Stock outstanding as of April 12, 2023
was 14,645,653.
FUTURE FINTECH GROUP INC.
Annual
Report on Form 10-K for Fiscal Year Ended December 31, 2022
PART I 1
ITEM 1 – BUSINESS 1
ITEM 1A – RISK FACTORS 33
ITEM 1B – UNRESOLVED STAFF COMMENTS 55
ITEM 2 – PROPERTIES 55
ITEM 3 – LEGAL PROCEEDINGS 55
ITEM 4 – MINE SAFETY DISCLOSURES 55
ITEM 6 – [RESERVED] 57
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 68
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 68
ITEM 9A – CONTROLS AND PROCEDURES 68
ITEM 9B – OTHER INFORMATION 69
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. 69
PART III 70
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 70
ITEM 11 – EXECUTIVE COMPENSATION 74
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES 79
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 81
SIGNATURE 84
i
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal
year ended December 31, 2022 (“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
Future Fintech Group, Inc. is a holding company
incorporated in Florida and it is not an operating company. As a holding company with no material operations of its own, the Company conducts
its business through its subsidiaries and contractual arrangements with a variable interest entity (VIE) – Cloud Chain E-Commerce
(Tianjin) Co., Ltd. (“E-Commerce Tianjin”). The Company is the primary beneficiary of the VIE for accounting purposes. It
is the holding company that the investors will hold an interest.
Unless otherwise stated, as used in this report
“we,” “us,” “Company,” “our,” or “Future FinTech” refers to Future FinTech
Group Inc., a Florida holding company, and “VIE” refers to the PRC variable interest entity (E-Commerce Tianjin).
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 and it is not a Chinese operating company. As a holding company with no material operations of
our own, we conduct a substantial majority of our operations through our subsidiaries and contractual arrangements with a variable interest
entity (VIE) – Cloud Chain E-Commerce (Tianjin) Co., Ltd. (“E-Commerce Tianjin”), based in China and this structure
involves unique risks to investors. The Company historically engaged in the production and sale of fruit juice concentrates (including
fruit purees and fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages) in People’s Republic
of China. Due to drastically increased production costs and tightened environmental laws in China, the Company had transformed its business
from fruit juice manufacturing and distribution to a real-name blockchain based e-commerce platform, supply chain financing services and
trading business and financial services and technology business. The business operations of the Company include blockchain based online
shopping platform, Chain Cloud Mall (“CCM”), supply chain financing services and trading, asset management and money transfer
service .The Company is also developing cryptocurrency mining and cryptocurrency market data services.
There are legal and operational risks associated
with being based in and having majority of our operations in Hong Kong and China. Recently, the PRC government initiated a series of
regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal
activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity
structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.
On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly
issued an announcement to crack down on illegal activities in the securities market and promote the high-quality development of the capital
market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement
and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system
of extraterritorial application of the PRC securities laws. On December 28, 2021, Cybersecurity Review Measures was published by Cyberspace
Administration of China or the CAC, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry
of Public Security, Ministry of State Security, Ministry of Finance, Ministry of Commerce, People’s Bank of China, State Administration
of Radio and Television, China Securities Regulatory Commission, State Secrecy Administration and State Cryptography Administration,
effective on February 15, 2022, which provides that, Critical Information Infrastructure Operators (“CIIOs”) that purchase
internet products and services and Online Platform Operators engaging in data processing activities that affect or may affect national
security shall be subject to the cybersecurity review by the Cybersecurity Review Office. On November 14, 2021, CAC published the Administration
Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires
cyberspace operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with
the Office of Cybersecurity Review. On April 2, 2022, the CSRC released the Provisions on Strengthening Confidentiality and Archives
Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), which provide that a domestic
company that seeks to offer and list its securities in a overseas market shall strictly abide by applicable PRC laws and regulations,
enhance legal awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality and archives
administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. On July 7, 2022,
CAC promulgated the Measures for the Security Assessment of Data Cross-border Transfer, effective on September 1, 2022, which requires
the data processors to apply for data cross-border security assessment coordinated by the CAC under the following circumstances: (i)
any data processor transfers important data to overseas; (ii) any critical information infrastructure operator or data processor who
processes personal information of over 1 million people provides personal information to overseas; (iii) any data processor who provides
personal information to overseas and has already provided personal information of more than 100,000 people or sensitive personal information
of more than 10,000 people to overseas since January 1st of the previous year; and (iv) other circumstances under which
the data cross-border transfer security assessment is required as prescribed by the CAC. On February 17, 2023, the CSRC released the
Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”)
with five interpretive guidelines, which took effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises
to complete filings with relevant governmental authorities and report related information under certain circumstances. The required filing
scope is not limited to the initial public offering, but also includes subsequent overseas securities offering, single or multiple acquisition(s),
share swap, transfer of shares or other means to seek an overseas direct or indirect listing and a secondary listing or dual major listing
of issuers already listed overseas. According to the Notice on Arrangements for Overseas Securities Offering and Listing by Domestic
Enterprises, published by the CSRC on February 17, 2023, a company that (i) has already completed overseas listing or (ii) has already
obtained the approval for the offering or listing from overseas securities regulators or exchanges but has not completed such offering
or listing before effective date of the new rules and also completes the offering or listing before September 30, 2023 will be considered
as an existing listed company and is not required to make any filing until it conducts a new offering in the future. Furthermore, upon
the occurrence of any of the material events specified below after an issuer has completed its offering and listed its securities on
an overseas stock exchange, the issuer shall submit a report thereof to the CSRC within 3 working days after the occurrence and public
disclosure of the event: (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory agencies or
other competent authorities; (iii) change of listing status or transfer of listing segment; or (iv) voluntary or mandatory delisting.
On February 24, 2023, the CSRC revised the Provisions on Strengthening the Management of Confidentiality and Archives Related to the
Overseas Issuance of Securities and Overseas Listing by Domestic Companies which were issued in 2009 (the “Archives Rules”).
The revised Archives Rules took effect on March 31, 2023. The revised Archives Rules expands their application to cover indirect overseas
offering and listing, stipulating that a domestic company which plans to publicly disclose any documents and materials containing state
secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file
with the secrecy administrative department at the same level. As of the date of this report, these new laws and guidelines have not impacted
the Company’s ability to conduct its business, accept foreign investments, or list and trade on a U.S. or other foreign exchange;
however, there are uncertainties in the interpretation and enforcement of these new laws and guidelines, which could materially and adversely
impact our business and financial outlook and may impact our ability to accept foreign investments or continue to list on a U.S. or other
foreign exchange. Any change in foreign investment regulations, and other policies in China or related enforcement actions by China government
could result in a material change in our operations and the value of our securities and could significantly limit or completely hinder
our ability to offer our securities to investors or cause the value of our securities to significantly decline or be worthless. The Company’s
auditor, Onestop Assurance PAC is headquartered in the Singapore and the Public Company Accounting Oversight Board (United States) (the
“PCAOB”) currently has access to inspect the working papers of our auditor and our auditor is not subject to the determinations
announced by the PCAOB on December 16, 2021. On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete
access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate
its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s
access in the future, the PCAOB Board will consider the need to issue a new determination. On December 29, 2022, a legislation entitled
“Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”), was signed into law by President
Biden. The Consolidated Appropriations Act contained, among other things, an identical provision to Accelerating Holding Foreign Companies
Accountable Act, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA
Act from three years to two. The Holding Foreign Companies Accountable Act and related regulations currently does not affect the
Company as the Company’s auditor is subject to PCAOB’s inspection and investigation.
1
As a holding company, we may rely on dividends
and other distributions on equity paid by our subsidiaries for our cash and financing requirements. If any of our subsidiaries or our
WFOE incurs debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to
us. However, neither any of our subsidiaries or the VIE has made any dividends, other distributions or cash transfers to our holding
company or any U.S. investors as of the date of this report. In the future, cash proceeds raised from overseas financing activities may
be transferred by us to our PRC subsidiaries via capital contribution or shareholder loans, as the case may be. As a holding company,
we may rely principally on dividends and other distributions on equity paid by our subsidiaries for our cash and financing requirements
we may have. As of the date of this report, we do not have cash management policies and procedures in place that dictate how funds are
transferred through our organization. Rather, the funds can be transferred in accordance with the applicable PRC laws and regulations. See
“Dividend Distribution and Cash Transfer Between the Holding Company, Subsidiary and VIE” and “Selected Condensed
Consolidated Financial Schedule of the Company and Its Subsidiaries and VIE.
As of the date of this report, no dividends or
distributions have been made between the holding company, its subsidiaries, and consolidated VIE, or to investors including U.S. investors.
The holding company, its subsidiaries, and the VIE do not have any plan to distribute dividend or settle amounts owed under the VIE Agreements
in the foreseeable future. To the extent cash and/or assets in the business are in the PRC and/or Hong Kong or our PRC and/or Hong Kong
entities, the VIE, and the WFOE (as defined below), such funds and/or assets may not be available to fund operations or for other use
outside of the PRC and/or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or
our subsidiaries by the PRC government to transfer cash and/or assets. See “Dividend Distribution and Cash Transfer
Between the Holding Company, Subsidiary and VIE.” and “Risk Factor - We could be restricted from paying dividends to shareholders
due to PRC laws and other contractual requirements. To the extent cash and/or assets in the business are in the PRC and/or Hong Kong
or our PRC and/or Hong Kong entities, the VIE, and the WFOE, such funds and/or assets may not be available to fund operations or for
other use outside of the PRC and/or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability
of us or our subsidiaries by the PRC government to transfer cash and/or assets.”
In the opinion of our
PRC counsel Fengdong Law Firm, the VIE and certain subsidiaries of the Company are incorporated and operating in mainland China and they
have received all required permissions from Chinese authorities to operate their current business in China, including Business licenses,
Bank Account Open Permits and Value Added Telecom Business License. Our subsidiaries outside of mainland China also have obtained permissions
or approvals to operate their business in the countries where they operate their business.
As of the date of this report, in the opinion
of our PRC counsel Fengdong Law Firm, we, our subsidiaries and the VIE in China are not subject to permission requirements from the China
Securities Regulatory Commission (“CSRC”), Cyberspace Administration of China (“CAC”) or any other entity that
is required to approve of the VIE’s operations and have not received or were denied such permissions by any PRC authorities. Nevertheless,
the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued
the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the Opinions, which were made
available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities,
and the need to strengthen the supervision over overseas listings by Chinese companies. On February 17, 2023, the CSRC released the New
Overseas Listing Rules with five interpretive guidelines, which took effect on March 31, 2023. The New Overseas Listing Rules require
Chinese domestic enterprises to complete filings with relevant governmental authorities and report related information for overseas offerings
and listings. Given the current PRC regulatory environment, it is uncertain whether we will be able to obtain permission from the PRC
government to offer our securities to foreign investors, and even when such permission is obtained, whether it will be denied or rescinded.
If we or any of our subsidiaries or the VIE do not receive or maintain such permissions or approvals, inadvertently conclude that such
permissions or approvals are not required, or applicable laws, regulations, or interpretations change and we or our subsidiaries are
required to obtain such permissions or approvals, it could significantly limit or completely hinder our ability to offer or continue
to offer our securities to investors and cause the value of our securities to significantly decline or become worthless. If applicable
laws, regulations, or interpretations change and the VIE is required to obtain such permissions or approvals in the future, we may face
substantial uncertainties as to whether we can obtain such permissions or approvals in a timely manner, or at all. Failure to take timely
and appropriate measures to adapt to any of these or similar regulatory compliance challenges could materially and adversely affect our
current corporate structure and business operations. In addition, these VIE agreements have not been truly tested in the courts in China
and Chinese regulatory authorities could disallow the VIE structure, which would likely result in a material change in our operations
and/or value of our securities, including that it could cause the value of our securities to significantly decline or become worthless.
The VIE structure is used to provide investors with exposure to foreign investment in China-based companies where Chinese law prohibits
or restricts direct foreign investment in certain types of operating companies, and that investors may never hold equity interests in
the VIE. See “Risk Factor - If the PRC government deems that the contractual arrangements in relation to the consolidated variable
interest entity do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations
or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish
our interests in those operations.”
2
On May 11, 2021, the Company established Future
Supply Chain (Chengdu) Co., Ltd. Its business is coal and aluminum ingots supply chain financing services and trading.
On May 12, 2021, the Company established Future
Big Data (Chengdu) Co., Ltd. in Chengdu, China. Its business includes big data technology and industrial internet data services.
On June 8, 2021, the Company established Tianjin
Future Private Equity Fund Management Partnership (Limited Partnership) in Tianjin, China. Its main business is external equity investment.
June 14, 2021, the Company established Future
FinTech Labs Inc. in New York to serve as its global R&D and technical support center.
On June 24, 2021, the Company established FTFT
Capital Investments L.L.C. in Dubai, United Arab Emirates. In December 2021, FTFT Capital Investments, LLC (“FTFT Dubai”),
a subsidiary of the Company, officially launched FTFTX, a cryptocurrency market data platform that provides investors with real-time
cryptocurrency market data and trading information from a large number of cryptocurrency exchanges. The market data is available for
Bitcoin, ETH, EOS, Litecoin, TRON and other cryptocurrencies at https://www.ftftx.com and via the FTFTX App on iOS and Android devices.
The FTFTX app is free to download on Google Play and the Apple Store.
On July 2, 2021, the Company established Future
Fintech Digital Number One US, LP. which is an investment fund.
On July 6, 2021, the Company established Future
Fintech Digital Capital Management, LLC., which provides investment advisory services and investment fund management.
On July 6, 2021, the Company established Future
Fintech Digital Number One GP, LLC., which is an off-shore investment fund.
On August 2, 2021, the Company incorporated FTFT
UK Limited in United Kingdom as serve as its operating base to develop fintech business in Europe.
On August 6, 2021, the Company completed
acquisition of 90% of the issued and outstanding shares of Nice Talent Asset Management Limited (“NTAM”), a Hong
Kong-based asset management company, from Joy Rich Enterprises Limited (“Joy Rich”). NTAM is licensed under the
Securities and Futures Commission of Hong Kong (“SFC”) to carry out regulated activities in Type 4: Advising on
Securities and Type 9: Asset Management.
On August 11, 2021, the Company established Future
Private Equity Fund Management (Hainan) Co., Ltd. Its business is investment fund management.
On November 22, 2021, the Company established
FTFT Digital Number One, Ltd., an investment fund.
On November 22, 2021, the Company established
Future Fintech Digital Number One Offshore, LLC., an investment fund.
On December 15, 2021, the Company established
FTFT Super Computing Inc. Its business is bitcoin and other cryptocurrency mining and related services.
In March 2022, FTFT UK Limited received has
received approval to operate as an Electronic Money Directive (“EMD”) Agent and has been registered as such with the
Financial Conduct Authority (FCA), a UK regulator. This status grants FTFT UK Limited the ability to distribute or redeem e-money
and provide certain financial services on behalf of an e-money institution (registration number 903050).
On April 18, 2022, the
Company and Future Fintech (Hong Kong) Limited, a wholly owned subsidiary of the Company jointly acquired 100% equity interest of
KAZAN S.A., a company incorporated in Republic of Paraguay for $288. The Company owns 90% and FTFT HK owns 10% of Kazan S.A.,
respectively. Kazan S.A. has no operation before the acquisition. The Company plans to develop bitcoin and other cryptocurrency mining
and related services in Paraguay. The Company has changed its name from KAZAN S.A to FTFT Paraguay S.A. on July 28, 2022.
On September 29, 2022, FTFT UK Limited completed its acquisition of
100% of the issued and outstanding shares of Khyber Money Exchange Ltd., a company incorporated in England and Wales, from Rahim Shah,
a resident of United Kingdom for a total of Euros €685,000 (“Purchase Price”), pursuant to a Share Purchase Agreement
(the “Agreement”) dated September 1, 2021. Khyber Money Exchange Ltd. is a money transfer company with a platform for transferring
money through one of its agent locations or via its online portal, mobile platform or over the phone. Khyber Money Exchange Ltd.
is regulated by the UK Financial Conduct Authority (FCA) and the parties received approval by the FCA before the formal closing of the
transaction. On October 11, 2022, the Company changed the name of Khyber Money Exchange Ltd. to FTFT Finance UK Limited.
3
On February 27, 2023, Future FinTech (Hong Kong)
Limited (“Buyer”), a company incorporated in Hong Kong and a wholly owned subsidiary of Future FinTech Group Inc. (the “Company”)
entered into a Share Transfer Agreement (the “Agreement”) with Alpha Financial Limited, a company incorporated in Hong Kong
(“Seller”) and sole owner and shareholder of Alpha International Securities (Hong Kong) Limited, a company incorporated
in Hong Kong (“Alpha HK”) and Alpha Information Service (Shenzhen) Co., Ltd., a company incorporated in China (“Alpha
SZ”). Alpha HK holds Type 1 ‘Securities Trading’, Type 2 ‘Futures Contract Trading’ and Type 4 ‘Securities
Consulting’ financial licenses issued by the Hong Kong Securities and Futures Commission. Alpha SZ provides technical support services
to Alpha HK.
On January 26, 2023,
the Company filed with the Florida Secretary of State’s office Articles of Amendment (the “Amendment”) to amend its
Second Amended and Restated Articles of Incorporation, as amended (“Articles of Incorporation”). As a result of the Amendment,
the Company has authorized and approved a 1-for-5 reverse stock split of the Company’s authorized shares of common stock from 300,000,000
shares to 60,000,000 shares, accompanied by a corresponding decrease in the Company’s issued and outstanding shares of common stock
(the “Reverse Stock Split”). The common stock will continue to be $0.001 par value. The Company rounds up to the next full
share of the Company’s shares of common stock any fractional shares that result from the Reverse Stock Split and no fractional
shares is issued in connection with the Reverse Stock Split and no cash or other consideration is paid in connection with any fractional
shares that would otherwise have resulted from the Reverse Stock Split. No changes are being made to the number of preferred shares of
the Company which remain as 10,000,000 preferred shares as authorized but not issued. The amendment to the Articles of Incorporation
of the Company will take effect at 1:00am Eastern Time on February 1, 2023. The Reverse Stock Split and Amendment were authorized and
approved by the Board of Directors of the Company without shareholders’ approval, pursuant to 607.10025 of the Florida Business
Corporation Act of the State of Florida.
Currently, Chain Cloud
Mall adopts an “Enterprise Communication as A Service” or eCAAS platform which is a part of 3.15 China Responsible Brand
Program run by the Anti-Counterfeiting Committee of China Foundation of Consumer Protection (the “Anti-Counterfeiting Committee”).
Anti-Counterfeiting Committee reviews and accepts the companies to join its 3.15 China Responsible Brand Program. After acceptance, these
companies are authorized to use anti-counterfeiting labels on their products which have authenticated signatures of these companies and
Anti-Counterfeiting Committee recorded on the blockchain quality and safety traceability system controlled by the Anti-Counterfeiting
Committee. The companies will sell such products on our eCAAS platform. The companies can also use sales agents to sell their products
on our eCAAS platform and parties can negotiate the commission percentages for the products sold. Any new sales agent must be recommended
by existing agents and pay a one-time fee to the eCAAS platform to be admitted as the authorized agent to provide sales agent services
on the platform.
The Company started its trial operation of NONOGIRL,
a cross-border e-commerce platform, in March 2020 and formally launched it in July 2020. The cross-border e-commerce platform aimed to
build a new s2b2c (supplier to business and consumer) outsourcing sales platform dominated by social media influencers. It was aimed
at the growing female consumer market, with the ability to broadcast, short video, and all forms communication through the platform.
It could also create a sales oriented sharing ecosystem with other major social media used by customers, etc. The Company’s promotion
strategy previously mainly relied on the training of members and distributors through meetings and conferences. Due to the outbreak of
COVID-19, the Chinese government put a restriction on large gatherings. These restrictions made the promotion strategy for our online
e-commerce platforms difficult to implement and the Company has experienced difficulties to subscribe new members for its online e-commerce
platforms. Due to the lack of new subscribers, in June 2021, the Company suspended its cross-border e-commerce platform (NONOGIRL) which
has been closed now. Also, since the second quarter of 2021, the Company has transformed its member-based business model of Chain Cloud
Mall to a sale agent based “Enterprise Communication as A Service” or eCAAS platform and began to provide supply chain financing
services and trading of coal for coal mines and power generation plants as well as aluminum ingots.
4
The Company currently has ten directly
controlled subsidiaries: DigiPay FinTech Limited (“DigiPay”), a company incorporated under the laws of the British
Virgin Islands, Future FinTech (Hong Kong) Limited, a company incorporated under the laws of Hong Kong, GlobalKey Shared Mall
Limited, a company incorporated under the laws of Cayman Islands (“GlobalKey Shared Mall”), Tianjin Future Private
Equity Fund Management Partnership, a Limited Partnership under the laws of China, FTFT UK Limited, a company incorporated under the
laws of United Kingdom, Future Fintech Digital Capital Management, LLC, a company incorporated under the laws of Connecticut, Future
Fintech Digital Number One GP, LLC, a company incorporated under the laws of Connecticut, Future FinTech Labs Inc., a company
incorporated under the laws of New York, FTFT SuperComputing Inc. a company incorporated under the laws of Ohio and FTFT
Paraguay S.A., a company incorporated under the laws of Paraguay.
SkyPeople Foods Holdings Limited (“SkyPeople
BVI”) was a wholly owned subsidiary of the Company and a company organized under the laws of the British Virgin Islands, which
held 100% of the equity interest of HeDeTang Holdings (HK) Ltd. (“HeDeTang HK”), a company organized under the laws of the
Hong Kong Special Administrative Region of the People’s Republic of China (“Hong Kong”), and HeDeTang HK held 73.42%
of the equity interest of SkyPeople Juice Group Co., Ltd., (“SkyPeople (China)”), a company incorporated under the laws of
the PRC. SkyPeople (China) had eleven subsidiaries in the PRC, which were mainly involved in the production and sales of fruit juice
concentrates, fruit juice beverages and other fruit-related products in the PRC and overseas markets. On February 27, 2020, SkyPeople
BVI (the “Seller”) completed the transfer of its ownership of HeDeTang HK to New Continent International Co., Ltd. (the “Buyer”),
an unrelated third party and a company incorporated in the British Virgin Islands for a total price of RMB 0.6 million (approximately
$85,714), pursuant to a Share Transfer Agreement entered into by the Seller and the Buyer on September 18, 2019 and approved at the special
shareholders meeting of the Company on February 26, 2020 (the “Sale Transaction”). SkyPeople BVI had no operational assets
or business after the transfer and the Company dissolved SkyPeople BVI on July 27, 2020.
Our organizational structure as of December 31,
2022 is set forth in the diagram:
Contractual
Arrangements
Equity
Interest
5
VIE Contractual Arrangements
On July 31, 2019, Cloud
Chain Network and Technology (Tianjin) Co., Limited (“CCM Network” or “CCM Tianjin”, formerly known as Chain
Cloud Mall Network and Technology (Tianjin) Co., Limited), Cloud Chain E-Commerce (Tianjin) Co., Ltd., formerly known as Chain Cloud
Mall E-Commerce (Tianjin) Co., Ltd. (“E-Commerce Tianjin”), a limited liability company incorporated under the laws of China,
and Mr. Zeyao Xue and Mr. Kai Xu, citizens of China and together 100% shareholders of E-Commerce Tianjin, entered into the following
agreements, or collectively, the “Variable Interest Entity Agreements” or “VIE Agreements,” pursuant to which
CCM Network has contractual rights to control and operate the business of E-commerce Tianjin (the “VIE”). Mr. Zeyao Xue is
a major shareholder of the Company and the son of Mr. Yongke Xue, the President of the Company. Mr. Kai Xu was the Chief Operating Officer
of the Company then and currently is the Deputy General Manager of FT Commercial Group Ltd., a wholly owned subsidiary of the Company
and the vice president of blockchain division of the Company. The VIE is consolidated for accounting purposes but is not an entity
in which we own equity.
Pursuant to Chinese
law and regulations, a foreign owned enterprise cannot apply for and hold a license for operation of certain e-commerce businesses. CCM
Network is an indirectly wholly foreign owned enterprise of the Company (“WFOE”). In order to comply with Chinese law and
regulations, CCM Network agreed to provide E-Commerce Tianjin an Exclusive Operation and Use Rights Authorization to operate and use
the Chain Cloud Mall System owned by CCM Network. Although the VIE Contractual Arrangements have been widely adopted by PRC companies
seeking for listing aboard, such arrangements have not been truly tested in any of the PRC courts. There are very few precedents
as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under
PRC laws. In addition, these VIE agreements have not been truly tested in the courts in China and Chinese regulatory authorities could
disallow the VIE structure, which would likely result in a material change in our operations and/or value of our securities, including
that it could cause the value of our securities to significantly decline or become worthless. The VIE structure is used to provide investors
with exposure to foreign investment in China-based companies where Chinese law prohibits or restricts direct foreign investment in certain
types of operating companies, and that investors may never hold equity interests in the VIE. If the consolidated VIE or its shareholders
fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional
resources to enforce such arrangements.
The following is a summary
of the currently effective contractual arrangements relating to E-Commerce Tianjin.
Contractual Arrangements with The Consolidated
Affiliated Entity and Its Respective Shareholders
The contractual
arrangements with the VIE and its shareholders allow us to consolidate financial results of the VIE in our financial statements
because we have satisfied conditions for consolidation of the VIE under U.S. GAAP, pursuant to which E-Commerce Tianjin is
considered a VIE under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 810 “Consolidation”, because the equity investments in E-Commerce Tianjin no longer have the
characteristics of a controlling financial interest, and the Company, through CCM Network, is the primary beneficiary of E-Commerce
Tianjin for accounting purposes. A VIE is an entity that either has a total equity investment that is insufficient to finance its
activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling
financial interest, such as through voting rights, right to receive the expected residual returns of the entity. The variable
interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary of, and must
consolidate, the VIE. CCM Network has a controlling financial interest in, receives the economic benefits from, is the primary
beneficiary of and has the power to direct the activities of the VIE to the extent that it has satisfied the conditions for
consolidation of the VIE under U.S. GAAP. Pursuant to the contractual arrangements with CCM Network, E-Commerce Tianjin shall pay
service fees equal to all of its net profit after tax to CCM Network. Such contractual arrangements are designed so that the
E-Commerce Tianjin would operate for the benefit of CCM Network and ultimately, the Company.
6
As a result of the contractual
arrangements with the VIE, we are regarded as the primary beneficiary of the VIE for accounting purposes, and we treat the VIE and its
subsidiaries as the consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of the VIE in our consolidated
financial statements in accordance with U.S. GAAP.
Exclusive Technology Consulting and Service
Agreement.
Pursuant to the Exclusive
Technology Consulting and Service Agreement, CCM Network agreed to act as the exclusive consultant of E-Commerce Tianjin and provide
technology consulting and services to E-Commerce Tianjin. In exchange, E-Commerce Tianjin agreed to pay CCM Network a technology consulting
and service fee, the amount of which is to be equivalent to the amount of net profit before tax of E-Commerce Tianjin, payable on a quarterly
basis after making up losses of previous years (if necessary) and deducting necessary costs and expenses related to the business operations
of E-Commerce Tianjin. Without the prior written consent of CCM Network, E-Commerce Tianjin may not accept the same or similar technology
consulting and services provided by any third party during the term of the agreement. All the benefits and interests generated from the
agreement, including but not limited to intellectual property rights, know-how and trade secrets, will be CCM Network’s sole and
exclusive property. This agreement has a term of 10 years and may be extended unilaterally by CCM Network with CCM Network’s written
confirmation prior to the expiration date. E-Commerce Tianjin cannot terminate the agreement early unless CCM Network commits fraud,
gross negligence or illegal acts, or becomes bankrupt or winds up.
Exclusive Purchase Option Agreement and Power
of Attorney.
Pursuant to the Exclusive
Purchase Option Agreement, Mr. Zeyao Xue and Mr. Kai Xu granted to CCM Network and any party designated by CCM Network the exclusive
right to purchase, at any time during the term of this agreement, all or part of the equity interests in E-Commerce Tianjin, or the “Equity
Interests,” at a purchase price equal to the registered capital paid by Mr. Zeyao Xue and Mr. Kai Xu for the Equity Interests,
or, in the event that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable law.
Pursuant to powers of attorney executed by Mr. Zeyao Xue and Mr. Kai Xu, they irrevocably authorized any person appointed by CCM Network
to exercise all shareholder rights, including but not limited to voting on their behalf on all matters requiring approval of E-Commerce
Tianjin’s shareholder, disposing of all or part of the shareholder’s equity interest in E-Commerce Tianjin, and electing,
appointing or removing directors and executive officers. The person designated by CCM Network is entitled to dispose of dividends and
profits on the equity interest without reliance on any oral or written instructions of Mr. Zeyao Xue and Mr. Kai Xu. The powers of attorney
will remain in force for so long as Mr. Zeyao Xue and Mr. Kai Xu remain the shareholders of E-Commerce Tianjin. Mr. Zeyao Xue and Mr.
Kai Xu have waived all the rights which have been authorized to CCM Network’s designated person under the powers of attorney.
Equity Pledge Agreement.
Pursuant to the
Equity Pledge Agreements, Mr. Zeyao Xue and Mr. Kai Xu pledged all of the Equity Interests to CCM Network to secure the full and
complete performance of the obligations and liabilities on the part of E-Commerce Tianjin and them under this and the above
contractual arrangements. If E-Commerce Tianjin, Mr. Zeyao Xue, or Mr. Kai Xu breaches their contractual obligations under these
agreements, then CCM Network, as pledgee, will have the right to dispose of the pledged equity interests. Mr. Zeyao Xue and Mr. Kai
Xu agree that, during the term of the Equity Pledge Agreements, they will not dispose of the pledged equity interests or create or
allow any encumbrance on the pledged equity interests, and they also agree that CCM Network’s rights relating to the equity
pledge should not be interfered with or impaired by the legal actions of the shareholders of E-Commerce Tianjin, their successors or
designees. During the term of the equity pledge, CCM Network has the right to receive all of the dividends and profits distributed
on the pledged equity. The Equity Pledge Agreements will terminate on the second anniversary of the date when E-Commerce Tianjin,
Mr. Zeyao Xue and Mr. Kai Xu have completed all their obligations under the contractual agreements described above.
Spousal Consent Letters. The
spouse of Mr. Kai Xu (Mr. Zeyao Xue is not married), the shareholder of E-Commerce Tianjin has signed a spousal consent letter agreeing
that the equity interests in E-Commerce Tianjin held by and registered under the name of such shareholder will be disposed pursuant to
the contractual agreements with CCM Network. The spouse of such shareholder agreed not to assert any rights over the equity interest
in E-Commerce Tianjin held by such shareholder.
We are a holding company incorporated in Florida.
As a holding company with no material operations of our own, we conduct a substantial majority of our operations through our subsidiaries
and contractual arrangements with the VIE (E-Commerce Tianjin) based in China. The VIE is consolidated for accounting purposes but is
not an entity in which we own equity. The VIE structure is subject to various risks. For example, the contractual arrangements may not
be as effective as direct ownership in providing us with control over E-Commerce Tianjin. We expect to rely on the performance by the
VIE shareholders of their respective obligations under the contracts to exercise control over E-Commerce Tianjin. The VIE shareholders
may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks will exist throughout
the period in which we operate related e-commerce platform business through the contractual arrangements. If any dispute relating to
these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and arbitration,
litigation or other legal proceedings which could be a lengthy process and very costly.
7
Dividend Distribution and Cash Transfer
Between the Holding Company, Subsidiary and VIE
Our PRC operating entities receive a substantial
part of our revenue in the RMB. Under our current corporate structure, to fund any cash and financing requirements we may have, the Company
may rely on dividend payments from its ten direct wholly-owned subsidiaries. CCM Network will receives payment from E-Commerce Tianjin
when it starts to generate profits, pursuant to the VIE Agreements. Under existing PRC foreign exchange regulations, payments of current
account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies
without prior approval from State Administration of Foreign Exchange or the SAFE by complying with certain procedural requirements. Therefore,
our Chinese subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition
that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such
as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents.
Approval from or registration with appropriate government authorities is, however, required where the RMB is to be converted into foreign
currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC
government may also at its discretion restrict access in the future to foreign currencies for current account transactions. For the Company
and our subsidiaries in Hong Kong, BVI, Japan, Cayman, UK, Dubai and U.S. (“Non-PRC Entities”), there is no restrictions
on foreign exchange for such entities and they are able to transfer cash among these entities across borders. Also, there is no restrictions
and limitations on the abilities of Non-PRC Entities to distribute earnings from their businesses, including from subsidiaries to the
parent company or from the Company to the U.S. investors.
Current PRC regulations permit our PRC subsidiaries
to pay dividends to the Company only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards
and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year,
if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each such entity in China is also required
to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any,
is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase
the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are
not distributable as cash dividends except in the event of liquidation. Under the existing laws of Hong Kong, funds from capital accounts
can be repatriated and remitted overseas without restrictions, and there is no foreign exchange control imposed.
To the extent cash and/or assets in the business
are in the PRC and/or Hong Kong or our PRC and/or Hong Kong entities, the VIE, and the WFOE, such funds and/or assets may not be available
to fund operations or for other use outside of the PRC and/or Hong Kong due to interventions in or the imposition of restrictions and
limitations on the ability of us or our subsidiaries by the PRC government to transfer cash and/or assets. See “Risk Factor
- We could be restricted from paying dividends to shareholders due to PRC laws and other contractual requirements.” and “Risk
Factor - We could be restricted from paying dividends to shareholders due to PRC laws and other contractual requirements. To the extent
cash and/or assets in the business are in the PRC and/or Hong Kong or our PRC and/or Hong Kong entities, the VIE, and the WFOE, such
funds and/or assets may not be available to fund operations or for other use outside of the PRC and/or Hong Kong due to interventions
in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to transfer cash
and/or assets.” We intend to keep any future earnings to re-invest in and finance the expansion of our business, and we do
not anticipate that any cash dividends will be paid in the foreseeable future. We currently don’t have any cash management policies
and procedures in place that dictate how funds are transferred through our organization. Rather, the funds can be transferred in
accordance with the applicable PRC laws and regulations.
Cash dividends, if any, on our shares of common
stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our
overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to
10.0%. Pursuant to the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of
Double Taxation and the Prevention of Fiscal Tax Evasion With Respect to Taxes On Income, or the Double Tax Avoidance Arrangement, the
10% withholding tax rate may be lowered to 5%, if the recipient of the relevant dividends qualifies certain necessary requirements, including
without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project
must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the
dividends. The 5% withholding tax rate, however, does not automatically apply and in current practice, a Hong Kong project must obtain
a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax
authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the
tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double
Taxation Arrangement with respect to any dividends paid by our PRC subsidiaries to its immediate holding company, Future FinTech (Hong
Kong) Limited. As of the date of this report, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority.
Future FinTech (Hong Kong) Limited intends to apply for the tax resident certificate if and when its PRC subsidiaries plan to declare
and pay dividends to Future FinTech (Hong Kong) Limited.
During the fiscal years ended December 31, 2022
and 2021, cash transfers between our Company, our subsidiaries, and the VIE were as follows:
8
Selected Condensed Consolidated Financial
Schedule of the Company and Its Subsidiaries and VIE
The following tables present selected condensed
consolidated financial data of the Company and its subsidiaries and VIE for the years ended December 31, 2022 and 2021, and balance sheet
data as of December 31, 2022 and 2021, which have been derived from our audited consolidated financial statements for those periods.
The Company records its investments in its subsidiaries under the equity method of accounting. Such investments are presented in the
selected condensed consolidated balance sheets of the Company as “Investments in VIE” and the profit of the subsidiaries
is presented as “Income for equity method investment” in the selected condensed consolidated statements of income and comprehensive
income.
Future FinTech Group Inc.
As of December 31, 2022
Future FinTech Group Inc.
For the year ended December 31, 2022
9
Future FinTech Group Inc.
For the year ended December 31, 2022
Future FinTech Group Inc.
As of December 31 2021
10
Future FinTech Group Inc.
For the year ended December 31 2021
Future FinTech Group Inc.