Item 1A. Risk Factors
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
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, including China. Recently, 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 and the U.S. In March 2020, the World Health Organization declared COVID-19 a pandemic.
The COVID-19 pandemic has resulted in, among other things, quarantines, travel restrictions, and the temporary closure of office buildings
and facilities in China, Hong Kong and in the U.S.
A large part of our revenues are generated in
China. Consequently, our results of operations have been and may continue to be adversely affected, to the extent that COVID-19 harms
the Chinese and global economy. Any potential impact to our results will depend on, to a large extent, future developments and new information
that may emerge regarding the duration and severity of COVID-19 and the actions taken by government authorities and other entities to
contain COVID-19 or treat its impact, almost all of which are beyond our control. Potential impacts include, but are not limited to,
the following:
●
temporary closure of offices, travel restrictions or suspension of
transportation of products to our customers; and our suppliers have been negatively affected, and could continue to be negatively
affected, on their ability to fulfill our demands if there is any resurgence of COVID-19;
●
our customers that are negatively impacted by the outbreak of COVID-19
may reduce their budgets to purchase our products and services, which may materially adversely impact our revenue;
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●
We may have to provide significant sales incentives to our customers
in response to the COVID-19 outbreak, which may in turn materially adversely affect our financial condition and operating results;
●
The business operations of our customers and suppliers have been and
could continue to be negatively impacted by the outbreak, which may result in loss of customers or disruption of our services, which
may in turn materially adversely affect our financial condition and operating results;
●
any disruption of our supply chain, logistics providers or customers
could adversely impact our business and results of operations, including causing our suppliers unable to provide products for a period
of time or materially delay delivery to customers, which may also lead to loss of customers, as well as reputational, competitive and
business harm to us;
●
The Company’s promotion strategy for our e-commerce platform
mainly relied on the training of members and distributors through meetings and conferences. Due to the outbreak of COVID-19, the
Chinese government put a restriction on large gatherings and these restrictions has made CCM Shopping Mall and NONOGIRL difficult
to recruit new members and the Company has to suspend NONOGIRL platform and change business model of CCM Shopping Mall.
●
The global stock markets may experience, significant decline from the
COVID-19 outbreak, which could materially adversely affect our stock price.
Because of the uncertainty surrounding the COVID-19 outbreak, the future
impact related to the outbreak and potential resurgence as well as the local and global response cannot be reasonably estimated at this
time. There have been outbreaks of Omicron variant in Xi’an city, Hong Kong and Shanghai city during the first quarter of 2022 which
have resulted quarantines, travel restrictions, and temporary closure of office buildings and facilities in these cities.
The global economy has
also been materially negatively affected by the COVID-19 and there is continued severe uncertainty about the duration and intensity of
its impacts. The Chinese and global growth forecast is extremely uncertain, which would seriously affect our business.
While the potential
economic impact brought by, and the duration of COVID-19 and its new variants may be difficult to assess or predict, a widespread pandemic
could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect
our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 and its new variants could materially
negatively affect our business and the value of our common stock.
Further, as we do not
have access to a revolving credit facility, there can be no assurance that we would be able to secure commercial debt financing in the
future in the event that we require additional capital. We currently believe that our financial resources will be adequate to see us
through the outbreak. However, in the event that we do need to raise capital in the future, outbreak-related instability in the securities
markets could adversely affect our ability to raise additional capital.
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.
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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,
would likely result in reduced demand for our products and services. To the extent an international 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 faced with uncertainties relating to the intensifying competition 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 delayed, unexpected or adverse developments in this sector may adversely and materially affect our operational
and financial performances. As market dynamics, 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 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 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
its 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.
The asset management
services that NTAM provides involve various risks, and failure to identify or fully appreciate such risks will negatively affect our
reputation, client relationships, operations and prospects.
NTAM provides asset and wealth management service to clients.
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Neither the principal nor the return of the asset management products
that NTAM has provided its services on is guaranteed by NTAM. As such, NTAM generally does not bear any liabilities for any loss to capital
invested in the products. However, despite related risk warnings and disclaimers, the investors may attempt to hold NTAM responsible for
their losses and terminate their business with us, which could harm our reputation and result in reduced business. In addition, although
NTAM has implemented transparent disclosure policies, such policies and procedures may not be fully effective. If NTAM or its customer
service personnel are found to have engaged in misconduct or negligent in providing their services, NTAM may be held responsible when
the investors incur losses, and our reputation, client relationships, business and prospects will be materially and adversely affected.
Our operations
of NTAM depend on key management and professional staff and our business may suffer if we are unable to recruit or retain them.
The success of our business
is dependent, to a large extent, on the continued services of NTAM’s senior management, especially Mr. Siu Kei Chan, the Chief Executive
Officer of NTAM. If NTAM loses the services of Mr. Chan, it needs to promptly hire an experienced professional from the market, otherwise
it may not be able to execute its existing business strategy effectively, or we may have to change our current business direction. Such
disruptions to our business may take up significant energy and resources of the Company, and materially and adversely affect our future
prospects.
Moreover, NTAM daily
operations depend on the members of its mid-level management, experienced investment and trading managers, licensed representatives,
risk management officers, research analysts and IT specialists. We devote considerable resources to the recruiting and retaining these
personnel. However, the market for quality professionals is increasingly competitive. We expect to face significant competition from
other assets management firms and technology companies in hiring such personnel. The intense competition may require us to offer more
competitive compensation and other benefits to our talent, which could materially and adversely affect our financial condition and results
of operations. As a result, it may be difficult for us to continue to retain and motivate these employees, and this could affect their
decisions about whether or not they continue to work for us. If we do not succeed in attracting, hiring, and integrating excellent personnel,
or retaining and motivating existing personnel, NTAM may be unable to grow effectively.
Our risk management
and internal control systems of NTAM, as well as the risk management tools available to us, may not fully protect us against various
risks inherent in our business .
Currently, NTAM follows
its comprehensive internal risk management framework and procedures to manage its risks, including but not limited to, reputational risk,
legal risk, regulatory and compliance risk, operational risk, market risk, liquidity risk, and credit risk. However, its risk management
policies, procedures and internal controls may not be adequate or effective in mitigating the risks or protecting it against unidentified
or unanticipated risks. In particular, some methods of managing risks are based upon observed historical market behavior and experience
in the securities industry. These methods may fail to predict future risk exposures, which could be significantly greater than those
indicated by our historical measures. Other risk management methods depend upon an evaluation of available information regarding operating
and market conditions and other matters, which may not be accurate, complete, up-to-date or properly evaluated. In addition, the capital
markets in Hong Kong are rapidly developing, the information and experience that NTAM relies on for its risk management methods may become
quickly outdated as capital markets and regulatory environment in Hong Kong continue to evolve. Deficiencies in the risk management and
internal control systems and procedures may adversely affect our ability to identify or report our deficiencies or non-compliance. Any
of these may have a material and adverse effect on our business, financial condition, and operating results.
The operations
of NTAM may be adversely affected if it fails to obtain or maintain necessary approvals for conducting a particular business.
Due to the highly regulated nature of the financial
industry in jurisdiction where NTAM operates, many aspects of its business depend on obtaining and maintaining approvals, licenses, permits
or qualifications from relevant regulators in Hong Kong. Obtaining and maintaining such approvals, licenses, permits or qualifications
is contingent on NTAM’s compliance with regulatory requirements. Any failure to comply with regulatory requirements could limit
the scope of businesses in which NTAM is permitted to engage. Furthermore, additional regulatory approvals, licenses, permits or qualifications
may be required by relevant regulators in the future, and some of current approvals, licenses, permits or qualifications of NTAM are
subject to periodic renewal. The failure to obtain or maintain the required approvals, licenses, permits or qualifications could adversely
affect our results of operations and financial condition.
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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 are in the
process to complete an acquisition of a money transfer company in UK, which is expected to close during the first half of this year.
In the event of any future acquisitions, we may expend significant 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.
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.
The blockchain related products and services
that we are developing have the potential to be used in ways we do not intend, including for criminal or other illegal activities.
Blockchain-related products and services, in
particular cryptocurrencies, have the potential to be used for financial crimes or other illegal activities. Because the blockchain platform
that we are developing is novel, there are uncertainties regarding any legal and regulatory requirements for preventing blockchain-related
products and services from being put to such uses, and there are uncertainties regarding the liabilities and risks to the Company if
we are unable to prevent such uses. Even if we comply with all laws and regulations regarding financial and blockchain related products
and services, we have no ability to ensure that our customers, partners or others to whom we license or sell our products and services
comply with all laws and regulations applicable to them and their transactions.
Our blockchain based Shopping Mall employs security
measures common to blockchain technologies, such a multiple identity authentication and multi-signature requirements. The security measures
to be employed by our blockchain projects are subject to further improvement and development. There is no guarantee that the security
measures that we currently use or any that we may develop in the future will be effective.
Any negative publicity we receive regarding any
allegations of unlawful uses of our blockchain platform could damage our reputation. More generally, any negative publicity regarding
unlawful uses of blockchain technology in the marketplace could reduce the demand for our products and services. The occurrence of any
of the foregoing could have a material adverse effect on our financial results and business.
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The regulatory regime governing blockchain
technologies, cryptocurrencies, digital assets, and offerings of digital assets is uncertain, and new regulations or policies may materially
adversely affect the development of our blockchain related business.
Regulation of digital assets, cryptocurrencies, crypto mining, blockchain
technologies, and the blockchain platform we are developing is currently undeveloped and likely to rapidly evolve as government agencies
take greater interest in them. Regulation also varies significantly among international, federal, state and local jurisdictions and is
subject to significant uncertainty. Various legislative and executive bodies in the United States and in other countries may in the future
adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility of tokens generally and the
technology behind them or the means of transaction or in transferring them. Failure by our subsidiaries to comply with any laws, rules
and regulations, some of which may not exist yet or are subject to interpretation and may be subject to change, could result in a variety
of adverse consequences, including civil penalties and fines.
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 e-commerce business depends on the
continued use of the Internet and the adequacy of the Internet infrastructure.
Our e-commerce business and cryptocurrency market
data platform depend upon the widespread use of the Internet and e-commerce. Factors which could reduce the widespread use of the internet
for e-commerce 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.
Our business depends on our website, app,
network infrastructure and transaction-processing systems.
Our e-commerce business and cryptocurrency market data platform are
dependent on our IT infrastructure. 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, apps and our transaction and information processing systems. We expect to experience system interruptions due
to software failure. We may also experience temporary capacity constraints due to sharply increased traffic during sales or other promotions.
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 e-commerce business and cryptocurrency market data platform are
entirely dependent on the secure operation of our website and systems as well as the operation of the internet generally. Our business
involves the storage and transmission of users’ 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 users’ proprietary information,
cause interruption in our operations, damage our computers or those of our users, 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.
Failure to comply with the relatively new
E-Commerce Law may have a material adverse impact on our business, financial conditions and results of operations.
As the e-commerce industry is still evolving
in China, new laws and regulations may be adopted from time to time to address new issues that arise from time to time. For example,
in August 2018, the Standing Committee of the National People’s Congress promulgated the E-Commerce Law, which became effective
on January 1, 2019. The E-Commerce Law generally provides that e-commerce operators must obtain administrative licenses if business
activities conducted by the e-commerce operators are subject to administrative licensing requirements under applicable laws and regulations.
In addition, the E-Commerce Law imposes a number of obligations on e-commerce platform operators, including the obligations: (i) to
verify and register platform merchants, (ii) to ensure platform cybersecurity, including, but not limited to, data privacy, (iii) to
ensure fair dealing and the legitimate rights and interests of consumers on the platform, (iv) to publicize transaction information
preservation and transaction rules, and (v) to protect intellectual properties. See “ Item 1. Overview—Government
Regulations—Regulations Relating to E-Commerce ” for further details. As the E-Commerce Law is relatively new, no detailed
interpretation and implementation rules have been promulgated, and it remains uncertain how the E-Commerce Law will be interpreted and
implemented. We cannot assure you that our current business operations satisfy the obligations provided under the E-Commerce Law in all
respects. If the PRC governmental authorities determine that we are not in compliance with all the requirements proposed under the E-Commerce
Law, we may be subject to fines and/or other sanctions.
The E-Commerce Law also imposes a requirement
on operators of e-commerce platforms, such as E-Commerce Tianjin, to assist in tax collection with respect to income generated by sellers
from transactions conducted on e-commerce platforms, including, among others, submitting to the tax authority information on the identities
of sellers on e-commerce platforms and other information relating to tax payment. Failure to comply with the requirement may result in
operators of e-commerce platforms being subject to fines and, in severe circumstances, suspension of business operations of e-commerce
platforms. Substantial uncertainties exist regarding the interpretation and implementation of the E-Commerce Law. We encourage and incentivize
merchants to promote the products on our platform. If the merchants were deemed to be selling our products on consignment basis, the
PRC tax authorities may require them to make tax registration and request our assistance in these efforts, pursuant to the E-Commerce
Law, and the merchants on our platform may be subject to more stringent tax compliance requirements. The PRC government may adopt additional
requirements from time to time, and we may be requested by tax authorities to provide further assistance in the enforcement of tax regulations,
such as disclosure of transaction records and bank account information of the merchants, and withholding taxes for such merchants. If
any of these were to occur, we may lose our existing stores or fail to attract new stores on our platform and the level of activity may
be reduced on our platform. We may also incur increased costs and expenses as a result. The tightened tax enforcement by PRC tax authorities
in the e-commerce industry, such as imposition of reporting or withholding obligations on operators of e-commerce platforms with respect
to tax payable of merchants on e-commerce platforms, may have a material and adverse effect on our business, financial condition and
results of operations.
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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 may have 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. 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.
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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.
We may be exposed to litigation related
to the Sale Transaction on February 27, 2020 from the holders of our common stock.
Transactions such as the Sale Transaction are
often subject to lawsuits by stockholders. Particularly because the holders of our common stock will not receive any consideration from
the Sale Transaction, it is possible that they may sue the Company or the Board of Directors. Such lawsuits could result in substantial
costs and divert our management’s attention from other business concerns, which could seriously harm our business.
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,
VIE structures, 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 interest rate increases, to control the pace
of economic growth. These measures may cause decreased economic activity in China, and since 2012, China’s economic growth has
slowed down. Any 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.
30
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, including the enforceability of our VIE contractual arrangements. If future laws, administrative
regulations or provisions mandate further actions to be taken by companies with respect to existing VIE contractual arrangements, we
may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and
appropriate measures to adapt to any of these or similar regulatory compliance challenges could materially and adversely affect our current
corporate structure and business operations.
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, this 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. The
Company has received subpoenas from the SEC’s Division of Enforcement requiring us to produce documents and detailed information
relating to, among other things, the Company’s accounting procedures and treatment, management oversight, and the sale of HeDeTang
Holdings (HK) Ltd. to New Continent International Co., Ltd. The Company has provided responsive documents and information and will
continue to cooperate with regulator and produce requested documents and information. 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.
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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 intend to purchase internet products
and services and Data Processing Operators (“DPOs”) engaging in data processing activities that affect or may affect national
security shall be subject to the cybersecurity review by the Cybersecurity Review Office. On November 14, 2021, CAC published the Administration
Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires
cyberspace operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with
the Office of Cybersecurity Review. As confirmed by our PRC counsel, we are currently not subject to cybersecurity review with the Cyberspace
Administration of China (“CAC”) under these new measures, because our VIE 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.
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.
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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 and trade 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, 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 prospectus, 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 US.
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 prospectus, 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.
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 and VIE 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.
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, 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.
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Because
our principal assets are located outside of the United States, it may be difficult for investors to use U.S. securities laws to enforce
their rights against us, our officers and directors in the United States or to enforce judgments of United States courts against us or
them in the PRC.
Most
of our present officers and directors reside outside of the United States. In addition, most of our subsidiaries and assets are located
outside of the United States. Therefore, it may be difficult for investors in the United States to enforce their legal rights based on
the civil liability provisions of the U.S. securities laws against us in the courts of either the United States or the PRC and, even
if civil judgments are obtained in courts of the United States, to enforce such judgments in the PRC courts. Further, it is unclear if
extradition treaties now in effect between the United States and the PRC would permit effective enforcement against us or our officers
and directors of criminal penalties under the U.S. Federal securities laws or otherwise.
The
Holding Foreign Companies Accountable Act, or the HFCA Act, and the related regulations are evolving quickly. Further implementations
and interpretations of or amendments to the HFCA Act or the related regulations, or a PCOAB’s determination of its lack of sufficient
access to inspect our auditor, might pose regulatory risks to and impose restrictions on us because of our operations in mainland China.
A potential consequence is that our shares of common stock may be delisted by the exchange. The delisting of our common stock, or the
threat of our common stock being delisted, may materially and adversely affect the value of your investment. Additionally, the inability
of the PCAOB to conduct full inspections of our auditor deprives our investors of the benefits of such inspections.
The
Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. In accordance with the HFCA Act, trading
in securities of any registrant on a national securities exchange or in the over-the-counter trading market in the United States
may be prohibited if the PCAOB determines that it cannot inspect or fully investigate the registrant’s auditor for three consecutive
years beginning in 2021, and, as a result, an exchange may determine to delist the securities of such registrant. On June 22, 2021, the
U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require
the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections
for two consecutive years instead of three, thus reducing the time period before our securities may be prohibited from trading or delisted
if our auditor is unable to meet the PCAOB inspection requirement.
On
November 5, 2021, the SEC adopted the PCAOB rule to implement HFCA Act, which provides a framework for the PCAOB to determine whether
it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position
taken by one or more authorities in that jurisdiction.
On
December 2, 2021, SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The
rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting
firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate (the “Commission-Identified
Issuers”). A Commission-Identified Issuer will be required to comply with the submission and disclosure requirements in the annual
report for each year in which it was identified. If a registrant is identified as a Commission-Identified Issuer based on its annual
report for the fiscal year ended December 31, 2021, the registrant will be required to comply with the submission or disclosure requirements
in its annual report filing covering the fiscal year ended December 31, 2022.
On
December 16, 2021, the PCAOB issued its determinations (the “Determination”) that they are unable to inspect or investigate
completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong. The Determination includes
lists of public accounting firms headquartered in mainland China and Hong Kong that the PCAOB is unable to inspect or investigate completely.
The
enactment of the HFCA Act and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory
access to audit information could cause investors uncertainty for affected issuers and the market price of our shares of common stock
could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement.
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The
lack of access to PCAOB inspections prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based
in China and Hong Kong. As a result, investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB
to conduct inspections of auditors in China and Hong Kong makes it more difficult to evaluate the effectiveness of these accounting firm’s
audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections.
Our
auditor, Onestop Assurance PAC, an independent registered public accounting firm that is headquartered in Singapore, as an auditor of
companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States
pursuant to which the PCAOB conducts inspections to assess its compliance with the applicable professional standards. Our auditor is
currently subject to PCAOB inspections and is not included in the PCAOB Determinations. Although we believe that the Holding Foreign
Companies Accountable Act and the related regulations do not currently affect us, we cannot assure you that there will not be any further
implementations and interpretations of or amendments to the Holding Foreign Companies Accountable Act or the related regulations, which
might pose regulatory risks to and impose restrictions on us because of our operations in China and Hong Kong. A potential consequence
is that our shares may be delisted by the exchange on which they are listed. If our securities are unable to be listed on another securities
exchange, such a delisting would substantially impair your ability to sell or purchase our securities when you wish to do so, and the
risk and uncertainty associated with a potential delisting would have a negative impact on the market price of our shares.
Risks
Relating to Our Corporate Structure
If
the PRC government deems that the contractual arrangements in relation to our consolidated variable interest entity do not comply with
PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing
regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
Foreign
ownership of internet-based businesses, including value-added telecommunications services, is subject to restrictions under current PRC
laws and regulations. To comply with PRC laws and regulations, we conduct our e-commerce operations in China through a series of contractual
arrangements entered into among WFOE, our VIE and the shareholders of our VIE. As a result of these contractual arrangements, we exert
control over our VIE and consolidate its operating results in our financial statements under U.S. GAAP. For a detailed description of
these contractual arrangements, see “ Our VIE Contractual Arrangements.”
In
the opinion of our PRC counsel, our current ownership structure, the ownership structure of our PRC subsidiary and our consolidated VIE,
and the contractual arrangements among WFOE, our VIE and the shareholders of our VIE are common practices for the companies listed on
stock exchanges in the U.S. engaging in the businesses restricted in China and these contractual arrangements are valid and binding in
accordance with their terms and applicable PRC laws and regulations currently in effect. However, our Chinese counsel has also advised
us that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations
and there can be no assurance that the PRC government will ultimately take a view that is consistent with the opinion of our PRC counsel.
In the event PRC regulations change or are interpreted differently in the future, our shares may decline in value if we are unable to
assert our contractual control rights over the assets of our PRC VIE.
If
the PRC government finds that our contractual arrangements do not comply with its restrictions on foreign investment in the e-commerce
business, the relevant PRC regulatory authorities, including the China Securities Regulatory Commission may require us to discontinue
or place restrictions or onerous conditions on our operations and it may also impose fines, confiscate the income from the
WFOE or VIE. The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our e-commerce
business. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial
results of our VIE in our consolidated financial statements, if the PRC government authorities were to find our VIE structure and contractual
arrangements to be in violation of PRC laws and regulations. If the imposition of any of these government actions causes us to lose our
right to direct the activities of our VIE or our right to receive substantially all of the economic benefits and residual returns from
our VIE and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able
to consolidate the financial results of our VIE in our consolidated financial statements. Either of these results, or any other significant
penalties that might be imposed on us in this event, would have a material adverse effect on our financial condition and results of operations.
37
Any
failure by our consolidated VIE or their shareholders to perform their obligations under our contractual arrangements with them would
have a material adverse effect on our business.
If
our consolidated VIE or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have
to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under
PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective
under PRC laws. For example, if the shareholders of our VIE were to refuse to transfer their equity interest in the VIE to us or our
designee if we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith
toward us, then we may have to take legal action to compel them to perform their contractual obligations.
All
the agreements under our contractual arrangements are governed by PRC laws. Accordingly, these contracts would be interpreted in accordance
with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as well
established as in some other jurisdictions, such as in the United States. As a result, uncertainties in the PRC legal system could limit
our ability to enforce these contractual arrangements. Meanwhile, there are some regulations unfavorable to VIEs. However, there are
very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest
entity should be interpreted or enforced under PRC laws and there remain significant uncertainties regarding the ultimate outcome of
such legal proceedings should legal action become necessary. Currently, almost all of the Chinese companies listed on overseas stock
exchanges that are in the internet-based business such as e-commerce or online-gaming have adopted a VIE structure. If the losing parties
fail to carry out the court judgement or arbitration awards within a prescribed time limit, the prevailing parties may only enforce them
in PRC courts, which would require additional expenses and delay. In the event that we are unable to enforce these contractual arrangements,
or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to
exert effective control over our consolidated variable interest entities, and our ability to conduct our business may be negatively affected.
The
shareholders of our consolidated VIE may have potential conflicts of interest with us, which may materially and adversely affect our
business and financial condition.
The
shareholders of our VIE and their interests in our VIE may differ from their interests of our Company as a whole. These shareholders
may breach, or cause our consolidated variable interest entities to breach, the existing contractual arrangements we have with them and
our consolidated variable interest entity, which would have a material adverse effect on our ability to effectively control our consolidated
variable interest entity and receive economic benefits from it. For example, the shareholders may be able to cause our agreements with
E-Commerce Tianjin to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual
arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will
act in the best interests of our company or such conflicts will be resolved in our favor.
Currently,
we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that we
could exercise our purchase option under the exclusive option agreements with these shareholders to request them to transfer all of their
equity interests in E-Commerce Tianjin to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot
resolve any conflict of interest or dispute between us and the shareholders of our VIE, we would have to rely on legal proceedings, which
could result in the disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
Our
contractual arrangements with our consolidated affiliated entity may not be as effective in providing operational control as direct ownership.
We
have relied and expect to continue to rely on contractual arrangements with E-Commerce Tianjin and its shareholders to operate our CCM
shopping mall business. For a description of these contractual arrangements, see “ Our VIE Contractual Arrangements .”
These contractual arrangements may not be as effective in providing us with control over such entity as direct ownership. If we had direct
ownership of E-Commerce Tianjin, we would be able to exercise our rights as a shareholder to effect changes in the board of directors,
which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the current
contractual arrangements, we rely on the performance by E-Commerce Tianjin and its shareholders of their contractual obligations to exercise
control over our consolidated affiliated entity. Therefore, our contractual arrangements with our consolidated affiliated entity may
not be as effective in ensuring our control over our CCM shopping mall as direct ownership would be.
38
Risks
Related to Our Common Stock
We
are authorized to issue blank check preferred stock, which may be issued without shareholder approval and which may adversely affect
the rights of holders of our Common Stock.
We
are authorized to issue 10,000,000 shares of preferred stock. The Board is authorized under our articles of incorporation, as amended,
to provide for the issuance of shares of preferred stock by resolution and by filing a certificate of designations under Florida law,
to fix the designation, powers, preferences and rights of the shares of each such series of preferred stock and the qualifications, limitations
or restrictions thereof without any further vote or action by the shareholders. As of December 31, 2021, there were no shares of preferred
stock issued and outstanding. Any shares of preferred stock that are issued are likely to have priority over our Common Stock with respect
to dividend or liquidation rights. In the event of issuance, the preferred stock could be utilized under certain circumstances as a method
of discouraging, delaying or preventing a change in control, which could have the effect of discouraging bids to acquire us and thereby
prevent shareholders from receiving the maximum value for their shares. We have no present intention to issue any shares of preferred
stock in order to discourage or delay a change of control or for any other reason. However, there can be no assurance that preferred
stock will not be issued at some time in the future.
Zeyao
Xue has control over key decision making as a result of his control of a substantial amount of our voting stock.
Mr. Zeyao Xue, the son of our president, indirectly and directly beneficially
owns 13,034,114 shares, or approximately 18.6%, of our outstanding common stock as of April 12, 2022. Mr. Zeyao Xue’s beneficial
ownership of 18.6% of Future FinTech’s issued and outstanding common stock will likely give him the ability to control the outcome
of matters submitted to shareholders for approval, including but not limited to the election of directors and any merger, consolidation,
or sale of all or substantially all of the Company’s assets. This concentrated control could delay, defer, or prevent a change of
control, merger, consolidation, or sale of all or substantially all of the Company’s assets that other shareholders support, or
conversely this concentrated control could result in the consummation of such a transaction that other shareholders do not support. This
concentrated control could also discourage a potential investor from acquiring the common stock of the Company due to the limited voting
power of such shares. As a shareholder, even a controlling shareholder, Mr. Zeyao Xue is entitled to vote his shares, and shares over
which he has voting control, in his own interests, which may not always be in the interests of our shareholders generally.
Anti-takeover
provisions in our charter documents and under Florida law could discourage, delay or prevent a change in control of our Company and may
affect the trading price of our Common Stock.
As
a Florida corporation, we are subject to certain provisions of the Florida Business Corporation
Act that have anti-takeover effects and may inhibit a non-negotiated merger or other business combination. Our Articles of
Incorporation and Bylaws also contain other provisions which could have anti-takeover effects. These provisions include, without limitation,
the authority of our Board of Directors to issue additional shares of preferred stock and to fix the relative rights and preferences
of the preferred stock without the need for any shareholder vote or approval, as discussed above, and advance notice procedures to be
complied with by our shareholders in order to make shareholder proposals or nominate directors, such as:
●
authorize the issuance
of “blank check” preferred stock that could be issued by the Board to thwart a takeover attempt;
●
require that directors
only be removed from office upon a majority shareholder vote;
●
provide that vacancies
on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office;
●
limit who may call special
meetings of shareholders; and
For
more information regarding these and other provisions, see the exhibit titled “ Description of Our Securities — Anti-Takeover
Effects of Certain Provisions of Florida Law.”
39
In
recent years, our Common Stock has been in danger of being delisted from the NASDAQ Stock Market (“NASDAQ”).
On
February 28, 2019, the Company received a letter from NASDAQ notifying the Company that, because the closing bid price for the Company’s
common stock listed on NASDAQ was below $1.00 for 30 consecutive trading days, the Company no longer met the minimum bid price requirement
for continued listing on NASDAQ under NASDAQ Marketplace Rule 5550(a)(2). On May 7, 2019, the Company received a written notification
from the NASDAQ Stock Market Listing Qualifications Staff indicating that the Company has regained compliance with the $1.00 minimum
closing bid price requirement and that the matter is now closed.
On
April 17, 2019, the Company received a notification letter from NASDAQ stating the Company was not in compliance with NASDAQ Listing
Rule 5250(c)(1), due to its failure to timely file its Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018
10-K”). On May 21, 2019, the Company received a notification letter from NASDAQ stating the Company was not in compliance
with NASDAQ Listing Rule 5250(c)(1), due to its failure to timely file its Quarterly Report on Form 10-Q for the quarter ended March
31, 2019. On August 20, 2019, the Company received a notification letter from the NASDAQ stating the Company was not in compliance with
NASDAQ Listing Rule 5250(c)(1), due to its failure to timely file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
On October
16, 2019, the Company received a letter from the NASDAQ notifying the Company that it has regained compliance with NASDAQ’s
periodic filing requirements for continued listing on the Nasdaq Capital Market. The letter noted that as a result of the September
3, 2019 filing of the Form 10-K for the year ended on December 31, 2018 and the September 30, 2019 filing of the Forms
10-Q for the periods ended March 31, and June 30, 2019 with the Securities and Exchange Commission, the Company has regained
compliance with Listing Rule 5250(c)(1) and the matter is now closed.
On September
4, 2019, the Company received written notice from the NASDAQ stating that the Company did not meet the requirement of maintaining a minimum
of $2,500,000 in stockholders’ equity for continued listing on the NASDAQ Capital Market, as set forth in NASDAQ Listing
Rule 5550(b)(1), the Company also does not meet the alternative of market value of listed securities of $35 million under NASDAQ
Listing Rule 5550(b)(2) or net income from continuing operations of $500,000 in the most recently completed fiscal year or
in two of the last three most recently completed fiscal years under NASDAQ Listing Rule 5550(b)(3), and the Company is no longer in compliance
with the NASDAQ Listing Rules. On March 18, 2020, the Company received written notice form NASDAQ stating that the Company complies with
the Listing Rule 5550(b)(1).
On
November 4, 2019, the Company received a letter from the Nasdaq notifying the Company that, because the closing bid price for
the Company’s common stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company no longer meets the minimum
bid price requirement for continued listing on Nasdaq under Nasdaq Marketplace Rule 5550(a)(2), which requires a minimum bid
price of $1.00 per share. On April 14, 2020, the Company received a written notification from the Nasdaq indicating that the Company
has regained compliance with the $1.00 minimum closing bid price requirement and that the matter is now closed.
On
March 1, 2022, Future FinTech Group Inc. (the “Company”) received a letter from the Nasdaq Stock Market (“Nasdaq”)
notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $1.00
for 30 consecutive trading days, the Company no longer meets the minimum bid price requirement for continued listing on Nasdaq under
Nasdaq Marketplace Rule 5550(a)(2), which requires a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”).
The notification has no immediate effect on the listing of the Company’s common stock. In accordance with Nasdaq Marketplace Rule
5810(c)(3)(A), the Company has a period of 180 calendar days from the date of notification, until August 29, 2022 (the “Compliance
Period”), to regain compliance with the Minimum Bid Price Requirement. If at any time before the expiration of the Compliance
Period the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive
business days, Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement.
If the Company does not regain compliance by the end of the Compliance Period, the Company may be eligible for an additional 180 calendar
day period to regain compliance. To qualify, the Company will be required to meet the continued listing requirement for market value
of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement,
and will need to provide written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse
stock split, if necessary. However, if it appears to Nasdaq that the Company will not be able to cure the deficiency, or if the Company
is otherwise not eligible, Nasdaq will provide notice that the Company’s securities will be subject to delisting. The Company intends
to continue actively monitoring the bid price for its common stock between now and the expiration of the Compliance Period and will consider
all available options to resolve the deficiency and regain compliance with the Minimum Bid Price Requirement.
40
ITEM
1B – UNRESOLVED STAFF COMMENTS
Not applicable.