ITEM 1A – RISK FACTORS
Our business and an investment in our securities
are subject to a variety of risks. The following risk factors describe the most significant events, facts or circumstances that could
have a material adverse effect upon our business, financial condition, results of operations, ability to implement our business plan and
the market price for our securities. Additional risks and uncertainties that presently are not considered material or are not known to
us, and therefore are not mentioned herein, may impair our business operations. Many of these events are outside of our control.
If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected.
In such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.
Risks Related to Our Business
We are involved, and may become involved
in the future, in disputes and legal or regulatory proceedings that, could materially and adversely affect our business, financial condition
and results of operations and cause the value of our securities to significantly decline or be worthless.
In January 2021, FT Global Capital, Inc. (“FT
Global”), a former placement agent of Future FinTech Group Inc. (the “Company” or “Defendant”) filed a lawsuit
against the Company in the Superior Court of Fulton County, Georgia in January 2021, relating to alleged breaches of an exclusive
placement agent agreement between FT Global and the Company in July 2020. The Company timely removed the case to the United States District
Court for the Northern District of Georgia (the “Court”) on February 9, 2021 based on diversity of jurisdiction. On April
11, 2024, the Court entered a judgment awarding FT Global $8,875,265.31 and on April 16, 2024, the Court issued an amended judgment, awarding
FT Global $10,598,379.93, which includes $7,895,265.31 in damages, $1,723,114.62 in prejudgment interest, and $980,000.00 in attorney’s
fees. On May 9, 2024, the Company filed a post-trial motion to set aside the jury verdict and for a new trial and the Court denied
the motion on March 3, 2025. The Company filed notice of appeal to appeal the judgement to the United States Court of Appeals for the
Eleventh Circuit on April 2, 2025.
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FT Global has registered the Court’s judgment
in the United States District Court for Southern District of New York (“NY Court”), where FT Global has brought a motion requiring
the Company to turn over its stock in its subsidiary companies. The Company has filed an opposition to the motion, arguing that
according to the New York statute the NY Court should first determine that the value of the stock in the subsidiary is insufficient to
satisfy the judgment as the Company believe the request for turnover is premature before a valuation hearing. On August 28, 2024, NY Court
granted FT Global’s motion for turnover of Defendant’s shares in Defendant’s wholly-owned subsidiaries as Defendant
1) failed to satisfy the $10.8 million judgment rendered in the Northern District of Georgia and registered in the Southern District of
New York, and 2) is in possession of money and property in which it has an interest. The NY Court ordered Defendant shall turn over the
shares, membership, or limited partnership interests in all of its subsidiaries, and the corporate seals of its China and Hong Kong-based
subsidiaries, to the U.S. Marshal for auction or sale until the judgment is satisfied. Pursuant to the order issued by the United States
District Court for the Southern District of New York on August 28, 2024, the United States Marshal for the Southern District of New York
(“U.S. Marshal”) sold the securities of the subsidiaries of the Company other than those in Hong Kong and China in auction of:
(i) all of the membership interests in Future Fintech Digital Capital Management LLC; (ii) all of the outstanding shares of FTFT UK Limited;
(iii) the corporate seal of DigiPay FinTech Limited; (iv) the corporate seal of GlobalKey SharedMall Limited; (iv) all of the outstanding
shares of Future Fintech Labs Inc.; and (v) all of the outstanding shares of Future Fintech Digital Number One GP, LLC (USA) to Alec Orudjiev,
the general counsel of FT Global for $25,000 on December 18, 2024. On December 6, 2024, the Company agreed to sell all issued and outstanding
shares of FTFT SuperComputing Inc. a wholly owned subsidiary of the Company (“FTFT SuperComputing”) to DDMM Capital LLC (the
“Buyer”) for a purchase price that equals to: (i) the assumption of the obligations of FTFT SuperComputing totaling $973,072.24
and (ii)$1,000,000, which was paid to an account at Olshan Frome Wolosky LLP to satisfy, in part, the right of payment held by FT Global
Capital, Inc. arising from the judgment entered in favor of FT Global and against the Company registered in the Southern District of New
York and all matters pertaining to such litigation. The Company has appealed the turnover order of the NY Court for the auction of securities
of the subsidiaries of the Company in Hong Kong and China to the United States Court of Appeals for the Second Circuit and is waiting
for the final decision of the Court of Appeals. On February 6, 2025, FT Global filed a motion (“Motion”) in the NY Court,
amended on February 12, 2025, seeking a turnover order for 39,825,939 unissued shares of the Company’s common stock for sale to
satisfy the judgement. The amended motion directs the requested relief not only at the Company but also at Transhare Corporation,
the Company’s Florida-based transfer agent. The Company believes the Motion lacks merit, as the issuance of unissued shares in this
manner would violate corporate governance principles, Florida corporate law, and federal securities regulations. The Company has
opposed the Motion, which is now fully briefed and awaits decision by the NY Court. The litigation against FT Global has been long
and costly which has materially and adversely affect our business, financial condition and results of operations. If the NY Court grants
the Motion, we will have to turn over for all the unissued shares of common stock of the Company and the existing shareholders will be
significantly diluted and the value of our securities will significantly decline or become worthless.
From time to time, we may be a defendant in lawsuits and regulatory
actions relating to our business. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict
the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse effect on our business, financial condition
and results of operations. In addition, any significant litigation, regardless of its merits, could divert management’s attention
from our operations and may result in substantial legal costs. The Company has also been named in a putative securities class action case
and a derivatives case described in Item 3 Legal Proceedings below. While the Company believes it has adequate defenses, the defense of
those cases could become costly and could significantly divert management attention from its business.
An occurrence of an uncontrollable event
such as the COVID-19 pandemic may negatively affect our operations and financial results.
In recent years, there have been outbreaks of
epidemics in various countries. At the end of 2019, there was an outbreak of a novel strain of coronavirus (COVID-19), which has been
spread rapidly to many parts of the world, including China, Hong Kong, UK and the U.S. In March 2020, the World Health Organization declared
COVID-19 a pandemic. The COVID-19 pandemic resulted in, among other things, quarantines, travel restrictions, and the temporary closure
of office buildings and facilities in China, Hong Kong, UK and in the U.S.
A large part of our revenues are generated in
China and Hong Kong. Consequently, our results of operations was adversely affected during the outbreak, especially between 2020 and 2022. There
have been outbreaks of Omicron variant in various cities in China in 2022 which resulted quarantines, travel restrictions, and temporary
closure of office buildings and facilities in these cities. In December 2022, the Chinese government eased its strict zero COVID-19
policy which resulted in a surge of new COVID-19 cases during December 2022 and January 2023, which has disrupted our business operations
in China.
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 pandemic could materially negatively affect our business and the
value of our common stock.
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In general, our business could be adversely affected
by the epidemics, including, but not limited to, COVID-19, avian influenza, severe acute respiratory syndrome (SARS), the influenza A
virus, the Ebola virus, or other outbreaks. In response to an epidemic or other outbreaks, governments and other organizations may adopt
regulations and policies that could lead to severe disruption to our daily operations, including temporary closure of our offices and
other facilities. These severe conditions may cause us and/or our partners to make internal adjustments, including but not limited to,
temporarily closing down business, limiting business hours, and setting restrictions on travel and/or visits with clients and partners
for a prolonged period of time. Various impacts arising from severe conditions may cause business disruption, resulting in material, adverse
effects to our financial condition and results of operations.
Economic conditions have had and may continue
to have an adverse effect on our customers’ spending on our products and services.
The worldwide economy remains volatile and may
have entered in global recession. The adverse effect of a sustained international economic downturn, including sustained periods of decreased
spending, high unemployment levels, declining consumer or business confidence and continued volatility and disruption in the credit and
capital markets in China, would likely result in reduced demand for our products and services. To the extent an economic downturn develops,
we could experience a reduction in sales volume. If we are unable to reduce our operating costs and expenses proportionately, many of
which are fixed, our results of operations would be adversely affected.
The supply chain financing service industry
is an emerging and rapidly evolving industry in China and we might not achieve the development as we expected.
The supply chain financing service industry in
China is highly dynamic and rapidly evolving. Operating in this industry demands applying cutting-edge technologies to digitalize supply
chain financing workflows and optimize payment cycles, which is an emerging and relatively new business model in China. In addition, we
are facing uncertainties relating to the intensifying competition, inflation, general economy conditions and evolving regulatory environment
in China’s supply chain financing service industry. There have been limited proven methods to project available technology, regulatory
and industry standards on which we can rely, and the slowdown of domestic industries of infrastructure, the delay, unexpected or adverse
developments in this sector may adversely and materially affect our operational and financial performances. As market develops, regulatory
environment and our business continue to develop, we may need to adjust our business model and continue to upgrade our products and service
offerings, and if we fail to respond to and adapt to these developments promptly, or at all, our business, financial condition, results
of operations and prospects may be materially and adversely affected.
The supply chain financing service industry
is increasingly competitive in China. If we fail to compete effectively, we may lose our customers and partners, which could materially
and adversely affect our business, financial condition and results of operations.
The supply chain financing service industry in
the PRC is increasingly competitive, and there is no guarantee that we will be able to compete effectively and implement our business
strategies. We face intense competition primarily from third-party supply chain financing service providers. Some of these competitors
may have established strong brand recognition, robust technological capabilities and significant financial resources or offer comparable
technology solutions or own similar business scale to us. Intensifying competition may result in certain developments in this industry,
such as downward competitive pressure on price, expansion by existing competitors, adoption by our competitors of innovative technology
solutions or comparatively effective branding efforts, any of which may have a material adverse impact on our financial condition, results
of operations and growth prospects. Increased investments made and lower prices or innovative services offered by our competitors may
require us to divert significant managerial, financial and human resources in order to remain competitive, and ultimately may place a
greater pressure on us to maintain our market share and negatively impact the revenues growth and profitability of our business. Furthermore,
our business is subject to rapid changes in the industries we operate in, such as the introduction of new business models, and the entry
of new and well-funded competitors or industry disruptors. We may face even more intensified competition as a result of certain alliances,
acquisitions or consolidations within the industries where we operate that result in emergence of stronger competitors. Existing and new
competitors may leverage their established platforms or market positions, or introduce innovative business models, to launch products
or services that may attract a large customer base and achieve rapid growth, which may materially and adversely affect our business and
results of operations. If we are not able to compete effectively, the number of our customers and partners may decrease and our market
share and profitability may be negatively affected, which could materially and adversely affect our business, financial condition, results
of operations and prospects, as well as our reputation and brand.
Our supply chain finance business faces
risks in receivables, timely supplies, credit evaluation and commodity price fluctuations all of which could materially and adversely
affect our business, financial condition and results of operations.
Our supply chain finance
business faces various risk in its operation, including (i) risk of failure to collect our receivables in time after the delivery of commodities;
(ii) risk of unable to supply/deliver the commodity according to the contract requirements such as issues of quality and/or quantity of
goods. If we fail to control such risk and strictly implement our new supplier and client evaluation standards as well as the background
investigation for our risk control, we might not receive payment for the goods delivered or lose control of the title of the goods or
breach contracts to supply goods according to their terms, which will materially and adversely affect our business, financial condition
and results of operations. Also, if the market for commodities fluctuates sharply, our downstream customers might default on their purchase
obligation and cause losses to us, especially when the market of infrastructure in China slows down.
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The brokerage and
investment banking service industry are intensely competitive in Hong Kong. If we are unable to compete effectively, we may lose business
and our results of operations and financial condition may be materially and adversely affected.
The financial services
industry, including the brokerage and investment banking services industry in Hong Kong, is intensely competitive, highly fragmented,
and subject to rapid change, and we expect it to remain so. We compete mostly in Hong Kong, and on the basis of a number of factors, including
the ability to adapt to evolving financial needs of a broad spectrum of clients, our ability to identify market demands and business opportunities
to win client mandates, the quality of our advice, our employees and deal execution, the range and price of our products and services,
our innovation, our reputation, and the strength of our relationships. We expect to continue to invest capital and resources in our businesses
in order to grow and develop them to a size where they are able to compete effectively in their markets, have economies of scale, and
are themselves able to produce or consolidate significant revenues and profit. We cannot assure you that the planned and anticipated growth
of our brokerage and investment banking business will be achieved or in what timescale. There may be difficulties securing financing for
investment for growth and in recruiting and retaining the skilled human resources required to compete effectively. If we fail to compete
effectively against our competitors, our business, financial conditions, results of operations, and prospects will be materially and adversely
affected.
As a provider of brokerage
and investment banking business services for Hong Kong and Chinese investors on a global basis, our business generally requires us to
react promptly to the evolving demand of our clients and be able to provide innovative financial solutions tailored to their needs. We
may not be able to compete effectively with our competitors at all times and always be able to provide appropriate financial solutions
that promptly and accurately address our clients’ needs. If this were to happen, our ability to attract new or retain existing clients
will suffer, which would materially and adversely affect our revenues and earnings.
We primarily compete
with other providers of financial services to Asian investors. We may face pricing pressure as some of our competitors may seek to obtain
higher market share by reducing fees and commissions. Some of our competitors include large global financial institutions or state-owned
PRC financial institutions operating or headquartered in Hong Kong, many of which have longer operating histories, far broader financial
and other resources, and significantly greater name recognition than us and have the ability to offer a wider range of products, which
may enhance their competitive position. They also regularly support services we do not provide, such as commercial lending, margin lending
and other financial services and products, which puts us at a competitive disadvantage and could result in pricing pressures or lost opportunities,
which in turn could materially and adversely affect our results of operations. In addition, we may be at a competitive disadvantage with
regard to some of our competitors that have larger customer bases and greater human resources.
We may engage in future acquisitions involving
significant expenditures of cash, the incurrence of debt or the issuance of stock, all of which could have a materially adverse effect
on our operating results.
As part of our business strategy, we review acquisition
and strategic investment prospects that we believe would complement our current product and service offerings, augment our market coverage,
enhance our technological capabilities or otherwise offer growth opportunities. From time to time, we review investments in new business
and we expect to make investments in, and to acquire, business, products or technologies in the future. We have completed acquisitions
of a money transfer company in UK and brokerage and investment banking firm in Hong Kong in 2023. In the event of any future acquisitions,
we may expend significant costs and cash, incur substantial debt and/or issue equity securities and dilute the percentage ownership of
current shareholders, all of which could have a material adverse effect on our operating results and the price of our stock. We cannot
guarantee that we will be able to successfully integrate any business, products, technologies or personnel that we may acquire in the
future, and our failure to do so could have a material adverse effect on our business, operating results and financial condition. For
example, we had to sell NTAM as it was unable to generate net profit due to high labor cost and slow down of capital market in Hong Kong.
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We may not be able to prevent others from
unauthorized use of our intellectual property, which could harm our business and competitive position.
Our success depends, in part, on our ability to
protect our proprietary technologies. The process of seeking intellectual property protection can be lengthy and expensive and we cannot
guarantee that our existing or future intellectual property rights will be fully protected or bring us the commercial advantages. We also
cannot guarantee that our current or potential competitors do not have, and will not obtain, intellectual property rights that will prevent,
limit or interfere with our ability to use our technology or sell our products and services in the PRC or other countries.
The implementation and enforcement of PRC intellectual
property laws historically have not been vigorous or consistent. Accordingly, intellectual property rights and confidentiality protections
in the PRC are not as effective as those in the United States and other countries. We may need to resort to litigation to enforce or defend
our rights or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such litigation will require
significant expenditures of cash and management efforts and could harm our business, financial condition and results of operations. An
adverse determination in any such litigation will impair our intellectual property rights and may harm our business, competitive position,
business prospects and reputation.
Intellectual property infringement claims
may adversely impact our results of operations.
As we develop and introduce new products and services,
we may be increasingly subject to claims of infringement of another party’s intellectual property. If a claim for infringement is
brought against us, such claim may require us to modify our products or services, cease selling certain products or engage in litigation
to determine the validity and scope of such claims. Any of these events may harm our business and results of operations.
Our business depends on internet, our websites,
network infrastructure and processing systems.
Our supply chain financing, and assets management
and financial services depend upon the widespread use of the internet. Factors which could reduce the widespread use of the internet include,
without limitation, actual or perceived lack of security of information or privacy protection, cyberattacks or other disruptions or damage
to the internet or to users’ computers, whatever the cause, could reduce customer satisfaction with our platforms and services and
harm our business. Any system interruption that results in the unavailability of our websites, apps or reduced performance of our transaction
and information systems could reduce our ability to conduct our business. We use internally and externally developed systems for our websites
and our transaction and information processing systems. We expect to experience system interruptions due to software failure. Capacity
constraints can cause system disruptions, slower response times, delayed page presentation, degradation in levels of customer service
and other problems. We may also experience difficulties with our infrastructure upgrades. Any future difficulties with our transaction
and information processing systems or difficulties upgrading, expanding or integrating aspects of our systems may cause system disruptions,
slower response times, and degradation in levels of customer service, additional expense, impaired quality and speed of our services or
other problems.
If the location where all of our computer and
communications hardware is located is compromised, our business, prospects, financial condition and results of operations could be harmed.
If we suffer an interruption or degradation of services at the location for any reason, our business could be harmed. Our success, and
in particular, our ability to successfully receive and fulfil customers’ requests and provide high-quality customer service, largely
depends on the efficient and uninterrupted operation of our computer and communications systems. These limitations could have an adverse
effect on our business. Our disaster recovery plan may be inadequate, and we do not carry business interruption insurance to compensate
us for the losses that could occur. Despite our implementation of network security measures, our servers are vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, the occurrence of any of which could lead to interruptions, delays, loss of
critical data or the inability to accept and fulfil customer requests. The occurrence of any of the foregoing risks could harm our business.
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We are subject to cyber security risks and
may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents.
Our supply chain financing, assets management
and financial services are dependent on the secure operation of our website and systems as well as the operation of the internet generally.
Our business involves the storage of customers’ proprietary information, and security breaches could expose us to a risk of loss
or misuse of this information, litigation, and potential liability. A number of large internet companies have suffered security breaches,
some of which have involved intentional ransomware attacks. From time to time, we and many other internet businesses also may be subject
to a denial of service attacks wherein attackers attempt to block customers’ access to our website with ransomware. If we are unable
to avert a denial of service attack for any significant period, we could sustain substantial loss from payment of ransom fee, lost sales
and customer dissatisfaction. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types
of cyberattacks.
Cyberattacks may target us, our customers, our
suppliers, banks, payment processors, e-commerce in general or the communication infrastructure on which we depend. If an actual or perceived
attack or breach of our security occurs, customer and/or supplier perception of the effectiveness of our security measures could be harmed
and we could lose customers, vendors or both. Actual or anticipated attacks and risks may cause us to incur increasing costs, including
costs to deploy additional personnel and protection technologies, train employees, and engage third party experts and consultants. A person
who is able to circumvent our security measures might be able to misappropriate our or our customers’ proprietary information, cause
interruption in our operations, damage our computers or those of our customers, or otherwise damage our reputation and business. Any compromise
of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to
our reputation, and a loss of confidence in our security measures, which could harm our business.
As a public company, we are obligated to
maintain effective internal controls over financial reporting. Our internal controls may be determined not to be effective, which may
adversely affect investor confidence in us and, as a result, decrease the value of our Common Stock.
The PRC has not adopted management and financial
reporting concepts and practices similar to those in the United States. We have had difficulty in hiring and retaining a sufficient number
of qualified financial and accounting employees who are familiar with US GAAP and reporting requirements to work in the PRC. As a result
of these factors, we may experience difficulty in establishing and maintaining accounting and financial controls, collecting financial
data, budgeting, managing our funds and preparing financial statements, books of account and corporate records and instituting business
practices that meet investors’ expectations in the United States.
Rules adopted by the SEC, or the Commission, pursuant
to Sarbanes-Oxley Section 404 require annual assessment of our internal controls over financial reporting. The standards that must
be met for management to assess the internal controls over financial reporting as effective are relatively new and complex, and they require
significant documentation, testing and possible remediation to meet the detailed standards. This assessment will need to include disclosure
of any material weaknesses identified by our management in our internal control over financial reporting. During the evaluation and testing
process, if we identify one or more material weaknesses in our internal control over financial reporting as we have done previously and
this year, we will be unable to assert that our internal controls are effective. We have concluded that our internal control over financial
reporting is not effective. If we continue to be unable to conclude that our internal control over financial reporting is effective, we
could lose investor confidence in the accuracy and completeness of our financial reports, which could harm our business and cause the
price of our stock to decline.
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We may need additional capital to fund our
future operations and, if it is not available when needed, we may need to reduce our planned development and marketing efforts, which
may reduce our sales revenue.
We believe that our existing working capital and
cash available from operations will enable us to meet our working capital requirements for at least the next twelve months. However, if
cash from future operations is insufficient, or if cash is used for acquisitions or other currently unanticipated uses, we may need additional
capital. The development and marketing of new products and services and the expansion of our business and associated support personnel
require a significant commitment of resources. In addition, if the markets for our products and services develop more slowly than anticipated,
or if we fail to establish significant market share and achieve sufficient net revenues, we may continue to consume significant amounts
of capital. As a result, we could be required to raise additional capital. To the extent that we raise additional capital through the
sale of equity or convertible debt securities or other methods, the issuance of such securities could result in dilution of the shares
held by existing shareholders. If additional funds are raised through the issuance of debt securities, such securities may provide the
holders certain rights, preferences, and privileges senior to those of common shareholders, and the terms of such debt could impose restrictions
on our operations. We cannot guarantee that additional capital, if required, will be available on acceptable terms, or at all. If we are
unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned business development
and marketing efforts, which could harm our business, financial condition and operating results.
If our costs and demands upon management
increase disproportionately to the growth of our business and revenue as a result of complying with the laws and regulations affecting
public companies, our operating results could be harmed.
As a public company, we do and will continue to
incur significant legal, accounting, investor relations and other expenses, including costs associated with public company reporting requirements.
We also have incurred and will incur costs associated with current corporate governance requirements, including requirements under Section
404 and other provisions of Sarbanes-Oxley, as well as rules implemented by the SEC and the stock exchange on which our common stock
is traded. The expenses incurred by public companies for reporting and corporate governance purposes have increased dramatically over
the past several years. These rules and regulations have increased our legal and financial compliance costs substantially and make some
activities more time consuming and costly. If our costs and demands upon management increase disproportionately to the growth of our business
and revenue, our operating results could be harmed.
There are inherent uncertainties involved
in estimates, judgments and assumptions used in the preparation of financial statements in accordance with generally accepted accounting
principles in the United States, or U.S. GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect
on our business, financial condition and operating results.
The preparation of financial statements in accordance
with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) involves making estimates, judgments and assumptions that
affect reported amounts of assets (including intangible assets), liabilities and related reserves, revenue, expenses and income. Estimates,
judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to
the amounts of assets, liabilities, revenue, expenses and income. Any such changes could have a material adverse effect on our business,
financial condition and operating results.
Risks Related to Doing Business in the PRC
Changes in China’s economic, political
or social conditions or government policies could have a material adverse effect on our business and results of operations.
A substantial of the Company’s operations
are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by
the political, economic, and legal environments in the PRC, in addition to the general state of the PRC economy. The Company’s results
may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect
to laws and regulations, cybersecurity, anti-monopoly, anti-inflationary measures, currency conversion and remittance abroad, and rates
and methods of taxation, among other things, and such change of rules and policies can happen quickly with little advance notice.
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A substantial of the Company’s sales, purchases
and expense transactions are in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign
exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s
Bank of China, the central bank of China. Remittances in currencies other than RMB may require certain supporting documentation in order
to affect the remittance.
The Chinese economy differs from the economies
of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control
of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization
of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate
governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition,
the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese
government also exercises significant control over China’s economic growth through allocating resources, controlling payment of
foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant
growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government
has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit
the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may
be adversely affected by government control over blockchain related financial technology, capital investments or changes in tax regulations.
In addition, in the past the Chinese government has implemented certain measures, including more regulations on U.S. listed Chinese companies
and control the pace of economic growth. These measures may cause decreased economic activity in China, and since COVID-19, China’s
economic growth has slowed down. The prolonged slowdown in the Chinese economy may reduce the demand for our products and services and
materially and adversely affect our business and results of operations.
Furthermore, we and our China based operating
entities, as well as our investors, face uncertainty about future actions by the Chinese government that could significantly affect our
financial performance and operations. Failure to take timely and appropriate measures to adapt to any of these or similar regulatory compliance
challenges could materially and adversely affect our business operations.
If we become subject to additional scrutiny,
criticism and negative publicity involving U.S.-listed China-based companies, we may have to expend significant resources to investigate
and resolve the matter which could harm our business operations, any offering and our reputation and could result in a loss of your investment
in our shares, especially if such matter cannot be addressed and resolved favorably.
Recently, U.S. public companies that have substantially
operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and
regulatory agencies. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities,
a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto
and, in some cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of
many U.S.-listed China-based companies has decreased in value and, in some cases, has become virtually worthless. Many of these companies
have been subject to shareholder lawsuits and SEC enforcement actions and have conducted internal and external investigations into the
allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on us and our business.
If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend
significant resources to investigate such allegations and/or defend our company. This situation may be a major distraction to our management.
If such allegations are not proven to be groundless, our business operations will be severely hindered and your investment in our shares
could be rendered worthless.
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Uncertainties and quick change in the interpretation
and enforcement of Chinese laws and regulations with little advance notice could result in a material and negative impact our business
operations, decrease the value of our shares of common stock and limit the legal protections available to us.
The PRC legal system is based on written statutes,
and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system
continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these
laws, regulations and rules involves uncertainties. The enforcement of laws and that rules and regulations in China can change quickly
with little advance notice and the risk that the Chinese government may intervene or influence our operations at any time, or may exert
more control over offerings conducted overseas and/or foreign investment in China- based issuers, could result in a material change in
our operations and/or the value of our shares of common stock.
On July 6, 2021, the General Office of the Communist
Party of China Central Committee and the General Office of the State Council jointly issued an announcement to crack down on illegal activities
in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant
governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over
China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws.
Since this announcement is relatively new, uncertainties still exist in relation to how soon legislative or administrative regulation
making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified
or promulgated, if any, and the potential impact such modified or new laws and regulations will have on companies like us and our shares
of common stock.
On February 15, 2022, Cybersecurity Review Measures
published by Cyberspace Administration of China, National Development and Reform Commission, Ministry of Industry and Information Technology,
Ministry of Public Security, Ministry of State Security, Ministry of Finance, Ministry of Commerce, People’s Bank of China, State
Administration of Radio and Television, China Securities Regulatory Commission, State Secrecy Administration and State Cryptography Administration
became effective, which provides that, Critical Information Infrastructure Operators (“CIIOs”) that purchase internet products
and services and Online Platform Operators engaging in data processing activities that affect or may affect national security shall be
subject to the cybersecurity review by the Cybersecurity Review Office. As confirmed by our PRC counsel Fengdong Law Firm, we are currently
not subject to cybersecurity review with the Cyberspace Administration of China (“CAC”) under these new measures, because
E-Commerce Tianjin is not a cyberspace operator with personal information of more than 1 million users or has activities that affect or
may affect national security. Nevertheless, the aforementioned draft measures and any related implementation rules to be enacted may subject
us to additional compliance requirement in the future.
We cannot rule out the possibility that the
PRC government will institute a licensing regime or pre-approval requirement covering our industry at some point in the future. If such
a licensing regime or approval requirement were introduced, we cannot assure you that we would be able to obtain any newly required license
in a timely manner, or at all, which could materially and adversely affect our business and impede our ability to continue our operations.
From time to time, we may have to resort to administrative
and court proceedings to enforce our legal rights. Since PRC administrative and court authorities have significant discretion in interpreting
and implementing statutory and contractual terms, however, it may be more difficult to evaluate the outcome of administrative and court
proceedings and the level of legal protection we enjoy in the PRC legal system than in more developed legal systems. Furthermore, the
PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at
all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after
the violation. Such uncertainties, including uncertainties over the scope and effect of our contractual, property (including intellectual
property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely
affect our business and impede our ability to continue our operations.
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The Chinese government exerts substantial
influence over the manner in which we must conduct our business as well as more oversight and control over offerings that are conducted
overseas and/or foreign investment in China-based issuers, and may intervene or influence our operations at any time, which could result
in a material change in our operations, and significantly limit or completely hinder our ability to offer or continue to offer securities
to investors and, and cause the value of our shares of common stock to significantly decline or be worthless.
The Chinese government has exercised and continues
to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability
to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations,
land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations
or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support
recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest
ourselves of any interest we then hold in Chinese properties.
As such, our business is subject to various government
and regulatory interferences. We could be subject to regulation by various political and regulatory entities, including various local
and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly
adopted laws and regulations or penalties for any failure to comply. Our operations could be adversely affected, directly or indirectly,
by existing or future laws and regulations relating to its business or industry, which could result in a material change in our operation
and the value of our shares of common stock.
On February 17, 2023, the CSRC released New Overseas
Listing Rules with five interpretive guidelines, which took effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic
enterprises to complete filings with CSRC and report related information under certain circumstances, such as: a) an issuer making an
application for initial public offering and listing in an overseas market; b) an issuer making an overseas securities offering after having
been listed on an overseas market; c) a domestic company seeking an overseas direct or indirect listing of its assets through single or
multiple acquisition(s), share swap, transfer of shares or other means. 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 are 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 business 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. The New Overseas Listing Rules stipulate the legal consequences to the companies for breaches, including failure to fulfill
filing obligations or filing documents having false statement or misleading information or material omissions, which may result in a fine
ranging from RMB1 million to RMB10 million, and in cases of severe violations, the relevant responsible persons may also be barred from
entering the securities market. The Company is still processing the filings with CSRC for its offerings since the effective of New Overseas
Listing Rules and has not complied the filing requirements yet which would subject the Company to fines and other penalties for violation
of New Overseas Listing Rules.
On February 24, 2023, the CSRC revised the Provisions
on Strengthening the Management of Confidentiality and Archives Related to the Overseas Issuance of Securities and Overseas Listing by
Domestic Companies which were issued in 2009 (the “Archives Rules”). The revised Archives Rules took effect on March 31, 2023.
The revised Archives Rules expands their application to cover indirect overseas offering and listing, stipulating that a domestic company
which plans to publicly disclose any documents and materials containing state secrets or working secrets of government agencies, shall
first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level.
Furthermore, given recent statements by the Chinese
government indicating an intent to exert more oversight and control over offerings that are conducted overseas, although we are currently
not required to obtain permission from any of the PRC central or local government and has not received any denial to list on the U.S.
exchange, it is uncertain when and whether we will be required to obtain permission from the PRC government to list on U.S. exchanges
in the future, and even when such permission is obtained, whether it will be denied or rescinded, which could significantly limit or completely
hinder our ability to offer or continue to offer our securities to investors and cause the value of our shares to significantly decline
or be worthless.
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There are uncertainties under the PRC Securities
Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect
evidence within the territory of the PRC.
On December 28, 2019, the amended Securities Law
of the PRC (the “PRC Securities Law”) was promulgated, which became effective on March 1, 2020. According to Article 177 of
the PRC Securities Law (“Article 177”), the securities regulatory authority of the State Council may establish a regulatory
cooperation mechanism with securities regulatory authorities of another country or region for the implementation of cross-border supervision
and administration. Article 177 further provides that overseas securities regulatory authorities shall not engage
in activities pertaining to investigations or evidence collection directly conducted within the territories of the PRC, and that no Chinese
entities or individuals shall provide documents and information in connection with securities business activities to any organizations
and/or persons aboard without the prior consent of the securities regulatory authority of the State Council and the competent departments
of the State Council.
As advised by our PRC counsel Fengdong Law Firm, Article 177 is only
applicable where the activities of overseas authorities constitute a direct investigation or evidence collection by such authorities within
the territory of the PRC. A substantial of our business operation is conducted in the PRC. In the event that the U.S. securities regulatory
agencies carry out an investigation on us such as an enforcement action by the Department of Justice, the SEC or other authorities, such
agencies’ activities will constitute conducting an investigation or collecting evidence directly within the territory of the PRC
and accordingly fall within the scope of Article 177. In that case, the U.S. securities regulatory agencies may have to
consider establishing cross-border cooperation with the securities regulatory authority of the PRC by way of judicial assistance, diplomatic
channels or establishing a regulatory cooperation mechanism with the securities regulatory authority of the PRC. However, there is no
assurance that the U.S. securities regulatory agencies will succeed in establishing such cross-border cooperation in this particular case
and/or establish such cooperation in a timely manner.
Furthermore, as Article 177 is
still a recently promulgated provision and, as the date of this report, there have not been implementing rules or regulations regarding
the application of Article 177, it remains unclear as to how it will be interpreted, implemented or applied by the Chinese Securities
Regulatory Commission or other relevant government authorities. As such, there are uncertainties as to the procedures and requisite timing
for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S.
securities regulatory agencies are unable to conduct such investigations, there exists a risk that they may determine to suspend or de-register
our registration with the SEC and may also delist our securities from Nasdaq or other applicable trading market within the U.S.
Under the PRC Enterprise Income Tax Law,
we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely
result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations
and the value of your investment.
Under the PRC Enterprise Income Tax Law,
or the “EIT Law,” that became effective in January 2008, an enterprise established outside the PRC with “de facto management
bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally
subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules to the EIT Law, a “de
facto management body” is defined as a body that has material and overall management and control over the manufacturing and business
operations, personnel and human resources, finances, and properties of an enterprise. In addition, a circular, known as SAT Circular 82,
issued in April 2009 by the State Administration of Taxation, or the “SAT,” specifies that certain offshore incorporated enterprises
controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or
resident in the PRC: senior management personnel and departments that are responsible for daily production, operation and management;
financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’
meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular 82, the SAT issued a bulletin,
known as SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82 and clarify
the reporting and filing obligations of such “Chinese-controlled offshore incorporated resident enterprises.” SAT Bulletin
45 provides procedures and administrative details for the determination of resident status and administration on post-determination matters.
Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups,
not those controlled by PRC individuals or foreign individuals, the determining criteria set forth in SAT Circular 82 and SAT Bulletin
45 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining
the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups,
or by PRC or foreign individuals.
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If the PRC tax authorities determine that the
actual management organ of Future FinTech Group Inc. is within the territory of China, it may be deemed to be a PRC resident enterprise
for PRC enterprise income tax purposes and a number of unfavorable PRC tax consequences could follow. First, we will be subject to the
uniform 25% enterprise income tax on our world-wide income, which could materially reduce our net income. In addition, we will also be
subject to PRC enterprise income tax reporting obligations. Finally, dividends payable by us to our investors and gains on the sale of
our shares may become subject to PRC withholding tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC
individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It
is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of
tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment
in our shares. Although up to the date of this report, Future FinTech Group Inc. has not been notified or informed by the PRC tax authorities
that it has been deemed to be a resident enterprise for the purpose of the EIT Law, we cannot assure you that it will not be deemed to
be a resident enterprise in the future.
We could be restricted from paying dividends
to shareholders due to PRC laws and other contractual requirements. To the extent cash and/or assets in the business are in the PRC and/or
Hong Kong or our PRC and/or Hong Kong entities, such funds and/or assets may not be available to fund operations or for other use outside
of the PRC and/or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries
by the PRC government to transfer cash and/or assets.
We are a holding company incorporated in the State
of Florida and do not have any assets or conduct any business operations other than our investments in our subsidiaries and affiliates.
As a result of our holding company structure, we rely entirely on dividend payments from our subsidiaries. PRC accounting standards and
regulations currently permit payment of dividends only out of accumulated profits, a portion of which is required to be set aside for
certain reserve funds. Furthermore, if our subsidiaries in China incur debt on its own in the future, the instruments governing the debt
may restrict its ability to pay dividends or make other payments. Although we do not intend to pay dividends in the future, our inability
to receive all of the profit from our China subsidiaries’ operations may provide an additional obstacle to our ability to pay dividends
if we so decide in the future. To the extent cash and/or assets in the business are in the PRC and/or Hong Kong or our PRC and/or Hong
Kong entities, such funds and/or assets may not be available to fund operations or for other use outside of the PRC and/or Hong Kong due
to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to
transfer cash and/or assets.
Governmental control of currency conversion
may affect the value of shareholder investments.
The PRC government imposes controls on the convertibility
of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. RMB is currently not a freely convertible
currency. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to satisfy foreign
currency obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions,
interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval by complying with certain
procedural requirements. Approval from appropriate governmental authorities, however, is required where RMB is to be converted into foreign
currency and remitted out of the PRC to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. In
addition, the PRC government could restrict access to foreign currencies for current account transactions in the future. If the foreign
exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to
pay certain of our expenses as they come due.
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The fluctuation of the RMB may harm shareholder
investments.
The value of the RMB against the U.S. dollar and
other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any
significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition. For example, to
the extent that we need to convert U.S. dollars we receive from an offering of our securities into RMB for our operations in China, appreciation
of the RMB against the U.S. dollar would diminish the value of the proceeds of the offering and could harm our business, financial condition
and results of operations. Conversely, if we decide to convert our RMB into U.S. dollars for business purposes and the U.S. dollar appreciates
against the RMB, the U.S. dollar equivalent of the RMB we convert would be reduced. In addition, the depreciation of significant U.S.
dollar denominated assets could result in a charge to our income statement and a reduction in the value of these assets.
PRC regulations relating to offshore investment
activities by PRC residents may limit our PRC subsidiary’s ability to increase its registered capital or distribute profits to us
or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.
The State Administration of Foreign Exchange or
SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment
through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or its
local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment
or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle
undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name, and operation
term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 is issued
to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip
Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE promulgated the Notice on Further Simplifying and Improving
the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice
has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch
in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
If our shareholders who are PRC residents or entities
do not complete their registration as required, our PRC subsidiaries may be prohibited from distributing its profits and proceeds from
any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital
to our PRC subsidiaries.
The failure or inability of the relevant shareholders
to comply with the registration procedures set forth in these regulations may subject us to fines and legal sanctions, such as restrictions
on our cross-border investment activities, on the ability of our wholly foreign-owned subsidiaries in China to distribute dividends and
the proceeds from any reduction in capital, share transfer or liquidation to us. Moreover, failure to comply with the various foreign
exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange
restrictions. As a result, our business operations and our ability to distribute profits to you could be materially and adversely affected.
Any failure to comply with PRC regulations
regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other
legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices
on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed
Company, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in
China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company,
subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiary
of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained
to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our
executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one
year will be subject to these regulations. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and
may also limit our ability to contribute additional capital into our PRC subsidiary and limit our PRC subsidiary’s ability to distribute
dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors,
executive officers and employees under PRC law.