Future FinTech Group Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; financial statements are unaudited. Amounts are in U.S. dollars. Future FinTech is a Florida holding company operating across supply-chain financing and commodity trading, asset management, e-commerce, money transfer and fintech, with cryptocurrency-related initiatives. It has shifted away from its former fruit-juice business and operates its China e-commerce business through a VIE structure.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $11.96 million | $11.75 million | $22.84 million | $12.50 million |
| Gross profit / margin | $1.49 million / 12.49% | $0.98 million / 8.37% | $4.66 million / 20.38% | $0.44 million / 3.51% |
| Operating loss | $4.64 million | $6.86 million | $10.16 million | $9.74 million |
| Loss from continuing operations | $3.63 million | $6.63 million | $8.67 million | $9.05 million |
| Net loss | $3.63 million | $10.49 million | $8.67 million | $11.69 million |
- Q3 revenue rose 1.8%; asset-management revenue increased to $4.12 million, while coal and aluminum trading revenue fell 18.7% to $7.84 million. The asset-management comparison reflects NTAM being consolidated for only part of Q3 2021.
- Nine-month revenue increased 82.7%, principally reflecting a full-period contribution from NTAM, acquired in August 2021, and a longer operating period for supply-chain trading. The mix shift toward higher-margin asset management lifted gross margin, but nine-month operating loss widened as operating expenses rose.
- Continuing-operations loss attributable to Future FinTech shareholders was $3.53 million in Q3, or $0.05 per basic share; for nine months it was $8.17 million, or $0.12 per basic share. The larger 2021 Q3 net loss included a $3.68 million loss on disposal of discontinued operations.
- At September 30, cash and cash equivalents were $32.96 million, down from $50.27 million at year-end 2021. Current assets were $66.36 million and current liabilities $11.77 million; reported working capital was $54.59 million.
- Nine-month cash flow from continuing operations was positive $0.59 million, versus an outflow of $19.81 million in 2021. Investing activities used $14.44 million, largely reflecting lending activity. Cash declined by $17.31 million overall, including a $3.20 million adverse exchange-rate effect. Financing activities used $0.25 million; the company raised no equity in the period.
- Loan receivables were $19.50 million, compared with $6.00 million at year-end. Accounts receivable was $1.45 million, down from $9.10 million; two debtors represented 89.07% of the balance.
- Current notes payable were $2.82 million, an acceptance bill maturing August 2023. Long-term debt was nil; lease liabilities totaled $0.31 million. Deferred liabilities of about $7.39 million relate mainly to conditional stock consideration for the NTAM acquisition.
Material changes, outlook and risks
- Management attributed the improved gross margin to the greater contribution from asset management. Coal and aluminum trading margins remained thin: Q3 gross margin was 1.74%, down from 3.07% a year earlier.
- The company recorded $0.93 million of nine-month impairment on a short-term investment; its reported balance was $0.97 million at September 30. Management cited China’s economic conditions, COVID-related restrictions, the war in Ukraine, inflation and recession concerns.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing $8.67 million of operating losses and dependence on successfully executing its strategy and eventually achieving profitability. It reported no revolving credit facility. Management said it believed available resources would be adequate through the COVID-19 outbreak, but cautioned that future financing may be difficult.
- No quantified financial guidance is provided. The filing describes plans and developments across financial services and fintech, but results remain subject to execution, market conditions and regulatory approvals. It reports that FTFT UK completed its acquisition of Khyber Money Exchange on September 29, 2022, with accounting and consolidation still in process. It also describes post-quarter launches of the Orbit e-wallet and initial cryptocurrency-mining operations in Ohio.
- Risks include COVID-related disruption, dependence on China-based operations and the VIE structure, and uncertainty in PRC law and regulatory enforcement. The company reports $25.46 million of PRC-subsidiary net assets subject to distribution restrictions.
- A former placement agent seeks approximately $7 million in a lawsuit. The company filed for summary judgment in October 2022; the claim remained unresolved in the filing’s discussion.
- Disclosure controls were deemed ineffective at September 30 because of a material weakness: insufficient accounting personnel with appropriate U.S. GAAP and SEC-reporting expertise. The company said it engaged an outside consultant to assist with remediation.
Important facts for investors to verify
- Whether the $19.50 million of third-party loan receivables is collectible on schedule, and the borrowers’ credit quality and collateral, if any.
- Whether NTAM’s revenue and margins are sustainable beyond the acquisition-related comparison effect, and whether the coal and aluminum business can improve its low margins.
- Liquidity needs and funding options given declining cash, continuing losses, the going-concern warning, and the lack of a revolving credit facility.
- Progress and potential financial impact of the $7 million placement-agent lawsuit, the China VIE and regulatory risks, and remediation of the material weakness.
- The filing reports a $0.93 million nine-month impairment but a $0.23 million Q3 impairment for the short-term investment; verify the period allocation and underlying valuation disclosures.