Future Fintech Group Inc. quarterly report, Q2 FY2022

Future FinTech Group Inc. — Q2 2022 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2022. Amounts are in U.S. dollars unless stated otherwise. The company is a Florida holding company with businesses spanning asset management, supply-chain financing and trading, e-commerce, and fintech/cryptocurrency services.

Financial performance and position

MetricQ2 2022Q2 2021Six months 2022Six months 2021
Revenue$7.42 million$1.35 million$10.88 million$1.35 million
Gross profit / margin$1.38 million / 18.54%$0.05 million / 3.81%$3.16 million / 29.06%$0.05 million / 3.83%
Loss from operations$2.84 million$0.75 million$5.52 million$2.28 million
Net loss$2.34 million$0.40 million$5.04 million$1.20 million
Loss per share from continuing operations$0.03$0.02$0.07$0.03
  • Revenue growth principally reflected asset-management revenue from the 2021 Nice Talent acquisition and higher coal/aluminum trading revenue. Asset management contributed $3.70 million in Q2 and $7.15 million in the first half; coal and aluminum trading contributed $3.65 million in each period.
  • Q2 operating expenses were $4.22 million, including $0.45 million of investment impairment; first-half operating expenses were $8.68 million, including $0.70 million impairment. Management attributed higher administrative costs primarily to acquisition-related professional fees and training/consulting, and higher selling costs to salaries and advertising.
  • At June 30, cash and equivalents were $42.03 million, down from $50.27 million at year-end 2021. Current assets were $66.45 million and current liabilities $6.97 million; reported working capital was $59.48 million.
  • First-half cash used in continuing operations was $5.13 million; cash used in investing was $5.99 million, largely reflecting net lending to third parties; financing provided $4.14 million. Cash declined by $8.24 million overall, including a $1.26 million adverse foreign-exchange effect.
  • Long-term debt was $0.18 million, described as interest-free and due in 2024; convertible notes were nil. Deferred liabilities totaled approximately $7.30 million, primarily unpaid Nice Talent acquisition consideration payable in company shares.

Changes, outlook, and material risks

  • The company’s reported revenue base and mix changed substantially: e-commerce membership revenue was negligible, while asset management and supply-chain trading became the principal reported revenue sources. The company said COVID-related restrictions impaired e-commerce promotion and disrupted supply-chain activity, including in Q1 2022.
  • Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing first-half operating losses of approximately $5.03 million and negative operating cash flow of $5.13 million. It said continued viability depends on executing its strategy and achieving profitable operations. The company also stated that it believed available resources would be adequate through the COVID-19 outbreak.
  • No quantitative earnings or revenue guidance is provided. Management’s forward-looking statements are subject to risks and are not guarantees.
  • Key risks include COVID-19 and related operating disruption; PRC regulatory uncertainty and the enforceability of the company’s VIE arrangements; exposure to China/Hong Kong operations; and uncertainty around future access to capital. The company said it had no revolving credit facility.
  • A former placement agent, FT Global Capital, claims approximately $7 million in damages and attorneys’ fees. Certain claims survived a motion to dismiss, and discovery was ongoing; the company said it would defend the case.
  • Disclosure controls were assessed as ineffective due to a material weakness: insufficient accounting personnel with appropriate U.S. GAAP and SEC-reporting experience. The company said it engaged an outside consultant to assist with reporting.
  • The filing reports a $0.70 million first-half impairment of a short-term investment amid worsening economic conditions. NTAM reported approximately $273 million of client assets under management; this is client AUM, not company cash or assets.

Most important facts for investors to verify

  • Whether the company can reduce operating cash burn and convert its new revenue mix into sustained operating profitability.
  • Recoverability, maturity, and credit risk of the $11.59 million loan-receivable balance and collectability of other receivables and supplier advances.
  • Valuation and liquidity of the impaired short-term investment, and the status and settlement terms of the remaining Nice Talent acquisition consideration.
  • Latest status and potential exposure from the FT Global litigation, including the claimed approximately $7 million.
  • Remediation progress for the material weakness and the resulting effectiveness of financial reporting controls.
  • Share-count reconciliation: 70,067,147 shares were issued and outstanding at June 30, while the cover page reports 73,114,147 outstanding at August 12, 2022; the supplied filing text does not clearly explain the difference.