Future FinTech Group Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021. Amounts are in U.S. dollars unless noted. Financial statements are unaudited.
Business context
Future FinTech has shifted from fruit-juice operations to blockchain-based e-commerce, supply-chain services and other fintech activities. In the second quarter, it moved CCM from a membership model toward a sales-agent platform and began coal supply-chain financing and trading. NONOGIRL was suspended in June 2021. Coal supply-chain activity generated most reported revenue in the quarter.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1.942 million | $113,687 | $1.948 million | $313,638 |
| Gross profit / margin | $71,355 / 3.68% | $104,328 / 91.77% | $71,945 / 3.69% | $303,766 / 96.85% |
| Loss from continuing operations | $381,901 | $750,935 | $1.357 million | $7.516 million |
| Net income (loss) | $(403,478) | $(834,980) | $(1.201) million | $116.053 million |
| Basic and diluted EPS from continuing operations | $(0.01) | $(0.02) | $(0.02) | $(0.21) |
Coal trading produced $1.942 million of external revenue in Q2 at a 3.67% gross margin. The sharp drop in overall margin reflected the much smaller contribution from high-margin membership fees and the new, lower-margin coal activity. The six-month 2020 net profit was driven by a $123.689 million gain on disposal of HeDeTang HK; it is not a comparable measure of ongoing performance. Q2 2021 also included a $21,577 disposal loss.
- Cash flow, six months: Operating cash outflow was approximately $2.99 million, investing outflow $16,589, and financing inflow $65.52 million. Financing included $67.88 million of net proceeds from common-stock issuance. Cash increased by $62.23 million to $72.02 million; foreign exchange reduced cash by $298,521.
- Liquidity at June 30: Current assets were $80.26 million and current liabilities $3.35 million, implying working capital of about $76.91 million. The company reported no off-balance-sheet arrangements.
- Debt and liabilities: Total liabilities were $4.57 million, versus $7.20 million at year-end 2020. Convertible notes declined from $1.16 million to zero after repayment. Loan payables were $445,936; amounts due to related parties were $1.21 million. Current and non-current lease liabilities totaled $204,359.
- Equity and shares: Stockholders’ equity was $76.33 million, compared with $8.73 million at December 31, 2020. Shares outstanding increased from 50.05 million to 65.32 million during the period; the cover reports 70.07 million outstanding as of August 13, 2021.
Changes, outlook and risks
Revenue growth reflects the launch of coal supply-chain financing and trading, not growth in the prior membership business. Membership revenue fell to $12 in Q2 from $104,762 a year earlier; six-month membership revenue fell to $84 from $303,647. The company attributed difficulty recruiting members to COVID-19 restrictions on gatherings and changed its sales model. No specific financial guidance or quantified operating forecast is provided.
Management states that operating losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. It says continued viability depends on executing its strategy and attaining profitable operations; equity issuance has been a key source of working capital.
- Litigation: Former placement agent FT Global claims approximately $7 million in damages and attorneys’ fees over alleged commissions. The company disputes the claim and is defending the case; its motion to dismiss was pending at the time of the filing. The filing does not provide a clear value for any related accrual.
- Controls: Management concluded disclosure controls were ineffective because of a material weakness: insufficient accounting personnel with appropriate U.S. GAAP and SEC-reporting expertise. An outside consultant was engaged to assist remediation.
- Other risks: The filing highlights COVID-19 effects on demand, supply chains and marketing, as well as uncertainty in PRC laws and enforcement. The CCM business operates through a PRC variable interest entity (VIE), creating contractual and regulatory risks.
- Subsequent events: After quarter-end, the company granted 1.953 million shares to officers and employees, agreed to a $1.553 million private placement, and filed a shelf registration statement for up to $200 million that was not yet effective. It also completed the acquisition of 90% of Hong Kong asset manager NTAM on August 6, 2021.
Most important facts to verify
- Whether coal trading can scale while improving on its approximately 3.7% gross margin and generating positive cash flow.
- Cash deployment, future funding needs and the sustainability of liquidity given ongoing losses and management’s going-concern warning.
- Progress and potential financial exposure in the FT Global lawsuit, including whether any liability is accrued.
- Remediation of the material weakness and the effectiveness of controls in subsequent filings.
- Effects of share grants, offerings and other equity activity on dilution, and the performance and costs of the post-quarter NTAM acquisition.