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. On June
17, 2025, the Company entered into a settlement and forbearance agreement with FT Global, pursuant to which the company is required to
pay FT Global an aggregate amount of $4.0 million over an 18-month period. For the fiscal year ended December 31, 2024 and 2025, the Company
paid $1.97 million and $1.85 million, respectively, towards accrued expenses and other payables.
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.
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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.
Our listing readiness and preparatory consulting
services business is in an early stage and is subject to regulatory interpretation and execution risks, and our ability to develop this
business may be affected by regulatory developments and market conditions.
We have recently expanded into listing readiness
and preparatory consulting services, which are conducted primarily through our Hong Kong subsidiary, Future FinTech (Hong Kong) Limited,
a company incorporated in Hong Kong. In certain limited circumstances, these services may also involve our PRC subsidiary, Future Information
Service (Shenzhen) Co., Ltd., a company organized under the laws of the People’s Republic of China. All activities relating to this
business have been conducted outside of the United States and are expected to continue to be conducted outside of the United States. These
services consist of corporate consulting support to private companies that are evaluating or preparing for a potential public listing,
including assistance with internal control readiness, financial reporting preparation, corporate governance structuring, coordination
with auditors and legal counsel, general preparatory matters relating to listing readiness, and assistance in completing the proposed
offering and listing. Neither we, nor our subsidiaries, Future FinTech (Hong Kong) Limited and Future Information Service (Shenzhen) Co.,
Ltd., engage in underwriting, securities brokerage, placement agent services, or investor solicitation activities in the United States
or in any other jurisdiction where we do not hold the required license or registration. Any securities offerings undertaken by our clients
are conducted by licensed underwriters, broker-dealers, or other appropriately registered financial institutions retained directly by
such clients.
Although we believe our activities are structured
as consulting services and are conducted in a manner intended to avoid requiring securities brokerage or similar licenses, the application
of securities laws and related regulations in various jurisdictions may involve fact-specific determinations and regulatory interpretation.
If regulatory authorities were to determine that additional licensing, registration, or approvals are required in connection with our
activities, we could be required to modify our business model, obtain additional approvals, incur increased compliance costs, or suspend
certain services.
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In addition, this business line is in an early
stage of development. As of the date of this report, Future FinTech (Hong Kong) Limited and Future Information Service (Shenzhen) Co.,
Ltd. have entered into consulting agreements with a limited number of clients. For the fiscal year ended December 31, 2025, the company recognized revenue of $135,605.61. the Company
did not recognize any revenue from these services. Client projects remain in preliminary stages, and there can be no assurance that such
engagements will progress to completed public listings or generate significant revenue in future periods. Our ability to develop this
business will depend on market conditions, client readiness, regulatory developments, and our ability to execute our consulting engagements
effectively.
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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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From time to time, we may have to resort to administrative
and court proceedings to enforce our legal rights. Since PRC administrative and court authorities have significant discretion in interpreting
and implementing statutory and contractual terms, however, it may be more difficult to evaluate the outcome of administrative and court
proceedings and the level of legal protection we enjoy in the PRC legal system than in more developed legal systems. Furthermore, the
PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at
all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after
the violation. Such uncertainties, including uncertainties over the scope and effect of our contractual, property (including intellectual
property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely
affect our business and impede our ability to continue our operations.
The Chinese government exerts substantial
influence over the manner in which we must conduct our business as well as more oversight and control over offerings that are conducted
overseas and/or foreign investment in China-based issuers, and may intervene or influence our operations at any time, which could result
in a material change in our operations, and significantly limit or completely hinder our ability to offer or continue to offer securities
to investors and, and cause the value of our shares of common stock to significantly decline or be worthless.
The Chinese government has exercised and continues
to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability
to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations,
land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations
or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support
recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest
ourselves of any interest we then hold in Chinese properties.
As such, our business is subject to various government
and regulatory interferences. We could be subject to regulation by various political and regulatory entities, including various local
and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly
adopted laws and regulations or penalties for any failure to comply. Our operations could be adversely affected, directly or indirectly,
by existing or future laws and regulations relating to its business or industry, which could result in a material change in our operation
and the value of our shares of common stock.
On February 17, 2023, the CSRC released New Overseas
Listing Rules with five interpretive guidelines, which 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.
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On February 24, 2023, the CSRC revised the Provisions
on Strengthening the Management of Confidentiality and Archives Related to the Overseas Issuance of Securities and Overseas Listing by
Domestic Companies which were issued in 2009 (the “Archives Rules”). The revised Archives Rules took effect on March 31,
2023. The revised Archives Rules expands their application to cover indirect overseas offering and listing, stipulating that a domestic
company which plans to publicly disclose any documents and materials containing state secrets or working secrets of government agencies,
shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same
level.
Furthermore, given recent statements by the Chinese
government indicating an intent to exert more oversight and control over offerings that are conducted overseas, although we are currently
not required to obtain permission from any of the PRC central or local government and has not received any denial to list on the U.S.
exchange, it is uncertain when and whether we will be required to obtain permission from the PRC government to list on U.S. exchanges
in the future, and even when such permission is obtained, whether it will be denied or rescinded, which could significantly limit or
completely hinder our ability to offer or continue to offer our securities to investors and cause the value of our shares to significantly
decline or be worthless.
There are uncertainties under the PRC Securities
Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect
evidence within the territory of the PRC.
On December 28, 2019, the amended Securities
Law of the PRC (the “PRC Securities Law”) was promulgated, which became effective on March 1, 2020. According to Article
177 of the PRC Securities Law (“Article 177”), the securities regulatory authority of the State Council may establish a regulatory
cooperation mechanism with securities regulatory authorities of another country or region for the implementation of cross-border supervision
and administration. Article 177 further provides that overseas securities regulatory authorities shall not engage in activities pertaining
to investigations or evidence collection directly conducted within the territories of the PRC, and that no Chinese entities or individuals
shall provide documents and information in connection with securities business activities to any organizations and/or persons aboard
without the prior consent of the securities regulatory authority of the State Council and the competent departments of the State Council.
As advised by our PRC counsel Fengdong Law Firm,
Article 177 is only applicable where the activities of overseas authorities constitute a direct investigation or evidence collection
by such authorities within the territory of the PRC. A substantial of our business operation is conducted in the PRC. In the event that
the U.S. securities regulatory agencies carry out an investigation on us such as an enforcement action by the Department of Justice,
the SEC or other authorities, such agencies’ activities will constitute conducting an investigation or collecting evidence directly
within the territory of the PRC and accordingly fall within the scope of Article 177. In that case, the U.S. securities regulatory agencies
may have to consider establishing cross-border cooperation with the securities regulatory authority of the PRC by way of judicial assistance,
diplomatic channels or establishing a regulatory cooperation mechanism with the securities regulatory authority of the PRC. However,
there is no assurance that the U.S. securities regulatory agencies will succeed in establishing such cross-border cooperation in this
particular case and/or establish such cooperation in a timely manner.
Furthermore, as Article 177 is still a recently
promulgated provision and, as the date of this report, there have not been implementing rules or regulations regarding the application
of Article 177, it remains unclear as to how it will be interpreted, implemented or applied by the Chinese Securities Regulatory Commission
or other relevant government authorities. As such, there are uncertainties as to the procedures and requisite timing for the U.S. securities
regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. securities regulatory
agencies are unable to conduct such investigations, there exists a risk that they may determine to suspend or de-register our registration
with the SEC and may also delist our securities from Nasdaq or other applicable trading market within the U.S.
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Under the PRC Enterprise Income Tax Law,
we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely
result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations
and the value of your investment.
Under the PRC Enterprise Income Tax Law,
or the “EIT Law,” that became effective in January 2008, an enterprise established outside the PRC with “de facto management
bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally
subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules to the EIT Law, a “de
facto management body” is defined as a body that has material and overall management and control over the manufacturing and business
operations, personnel and human resources, finances, and properties of an enterprise. In addition, a circular, known as SAT Circular
82, issued in April 2009 by the State Administration of Taxation, or the “SAT,” specifies that certain offshore incorporated
enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are
located or resident in the PRC: senior management personnel and departments that are responsible for daily production, operation and
management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings
and shareholders’ meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular
82, the SAT issued a bulletin, known as SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation
of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore incorporated resident
enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of resident status and administration
on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC
enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth
in SAT Circular 82 and SAT Bulletin 45 may reflect the SAT’s general position on how the “de facto management body”
test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC
enterprises, PRC enterprise groups, or by PRC or foreign individuals.
If the PRC tax authorities determine that the
actual management organ of Future FinTech Group Inc. is within the territory of China, it may be deemed to be a PRC resident enterprise
for PRC enterprise income tax purposes and a number of unfavorable PRC tax consequences could follow. First, we will be subject to the
uniform 25% enterprise income tax on our world-wide income, which could materially reduce our net income. In addition, we will also be
subject to PRC enterprise income tax reporting obligations. Finally, dividends payable by us to our investors and gains on the sale of
our shares may become subject to PRC withholding tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC
individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources.
It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country
of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your
investment in our shares. Although up to the date of this report, Future FinTech Group Inc. has not been notified or informed by the
PRC tax authorities that it has been deemed to be a resident enterprise for the purpose of the EIT Law, we cannot assure you that it
will not be deemed to be a resident enterprise in the future.
We could be restricted from paying dividends
to shareholders due to PRC laws and other contractual requirements. To the extent cash and/or assets in the business are in the PRC and/or
Hong Kong or our PRC and/or Hong Kong entities, 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.
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Governmental control of currency conversion
may affect the value of shareholder investments.
The PRC government imposes controls on the convertibility
of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. RMB is currently not a freely convertible
currency. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to satisfy
foreign currency obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions,
interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval by complying with certain
procedural requirements. Approval from appropriate governmental authorities, however, is required where RMB is to be converted into foreign
currency and remitted out of the PRC to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. In
addition, the PRC government could restrict access to foreign currencies for current account transactions in the future. If the foreign
exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to
pay certain of our expenses as they come due.
The fluctuation of the RMB may harm shareholder
investments.
The value of the RMB against the U.S. dollar
and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions.
Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition. For example,
to the extent that we need to convert U.S. dollars we receive from an offering of our securities into RMB for our operations in China,
appreciation of the RMB against the U.S. dollar would diminish the value of the proceeds of the offering and could harm our business,
financial condition and results of operations. Conversely, if we decide to convert our RMB into U.S. dollars for business purposes and
the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of the RMB we convert would be reduced. In addition, the depreciation
of significant U.S. dollar denominated assets could result in a charge to our income statement and a reduction in the value of these
assets.
PRC regulations relating to offshore investment
activities by PRC residents may limit our PRC subsidiary’s ability to increase its registered capital or distribute profits to
us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.
The State Administration of Foreign Exchange
or SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment
through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or
its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment
or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle
undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name, and
operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular
37 is issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing
and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE promulgated the Notice on Further Simplifying
and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1,
2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE
or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment
or financing.
If our shareholders who are PRC residents or
entities do not complete their registration as required, our PRC subsidiaries may be prohibited from distributing its profits and proceeds
from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional
capital to our PRC subsidiaries.
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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