Future FinTech Group Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 20, 2023. Unaudited results. The company is a Florida holding company operating mainly in supply-chain financing and commodity trading, asset management, and UK money transfers, with additional cryptocurrency-related activities.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $23.75m | $11.96m | $30.96m | $22.84m |
| Gross profit | $1.39m | $1.49m | $3.86m | $4.66m |
| Gross margin | 5.86% | 12.49% | 12.46% | 20.38% |
| Loss from continuing operations | $2.45m | $3.63m | $6.34m | $8.67m |
| Net loss | $2.45m | $3.63m | $6.23m | $8.67m |
| Basic loss per share | $0.16 | $0.25 | $0.41 total | $0.57 |
Q3 revenue increased 98.6%, primarily as supply-chain financing and trading revenue rose; asset-management revenue declined. For the first nine months, revenue grew 35.5%, mainly from sand and steel trading activity. Gross profit and margins fell in both comparisons, which management attributed principally to higher supply-chain trading costs. Lower operating expenses helped reduce operating losses; the nine-month comparison also includes a $1.15m recovery of previously provided bad debts and a $0.11m gain on disposal of discontinued operations.
Cash, liquidity and balance sheet
- At September 30, 2023, cash and cash equivalents were $32.71m and restricted cash was $0.70m; combined cash and restricted cash was $33.40m, versus $29.74m at year-end 2022.
- Working capital was $39.14m, down from $46.48m at December 31, 2022. Current assets were $50.66m; total assets were $70.54m.
- Nine-month operating cash outflow from continuing operations was $6.42m, versus $1.78m in 2022. Investing activities provided $13.64m, largely from loan repayments; financing activities used $2.91m. Cash and restricted cash increased by $3.67m overall.
- Total liabilities were $12.03m, including $0.70m of notes payable due December 2023, $0.80m of lease liabilities, and $7.39m of deferred liabilities associated with the Nice Talent acquisition. The deferred liability was settled in company shares on October 17, 2023. The filing reports no default on the note payable.
- Loan receivables fell to $4.92m from $19.16m at year-end; other receivables rose to $5.89m from $2.65m. Accounts receivable was $3.23m, including $0.95m outstanding over 90 days.
Material changes and developments
- Nine-month supply-chain financing/trading revenue increased 78.1% to $20.47m, while asset-management revenue declined 14.0% to $9.69m. The company reported substantial customer and supplier concentration.
- The company adopted a 1-for-5 reverse stock split effective February 1, 2023. It reported 14,645,653 shares outstanding at September 30 and 14,944,874 at November 17, 2023.
- On November 7, 2023, a subsidiary completed the acquisition of Hong Kong securities and futures businesses and a Shenzhen technical-services company for approximately $2.01m.
- The company reported approximately $242m of assets under management at NTAM; this is client assets, not company balance-sheet assets.
Outlook, risks and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing continuing operating losses and negative operating cash flow. The company says continued viability depends on executing its strategy and achieving profitable operations. It has no revolving credit facility; no specific financial guidance is provided.
- Controls: Management concluded disclosure controls were ineffective because of a material weakness involving insufficient personnel with appropriate U.S. GAAP and SEC-reporting expertise. Consultants were engaged to support accounting and review internal controls; remediation is ongoing.
- SEC settlement: The company agreed to a $1.65m civil penalty and to retain an independent consultant to review internal controls. The filing’s payment schedule says the second installment was $375,000, but separately describes the first and second installments as $150,000 each; payment details should be confirmed.
- Litigation: Former placement agent FT Global seeks approximately $7m in damages and attorneys’ fees. The company’s summary-judgment motion was denied; mediation occurred in October 2023, and the filing reported a January 2024 trial setting. The filing text does not provide a clear estimate of any potential loss.
- Concentration and credit risks: Two customers represented 60.84% and 27.88% of nine-month revenue; one vendor represented 75.83% of purchases. Three debtors accounted for 81.12% of accounts receivable.
- China-related risks: The company relies substantially on PRC operations and a contractual VIE structure. It warns that regulatory changes, uncertainty in enforcement, or restrictions on the VIE structure or overseas listings could materially affect operations or share value.
- The filing also cites exposure to market and investment volatility, foreign exchange movements, and potential effects of economic disruption. Short-term investment impairment was $3,872 for the nine months, versus $0.93m in 2022.
Important facts for investors to verify
- Whether the company can reduce operating cash outflows and achieve profitable operations, given the going-concern warning.
- The actual gross economics and cash-conversion cycle of commodity trading, where revenue growth coincided with sharply lower gross margins.
- Collectability and terms of loan and other receivables, including aged and concentrated customer balances and the deposits described in the notes.
- The status and potential financial exposure of the FT Global lawsuit, and the remaining SEC penalty installments and control-remediation obligations.
- How the November 2023 acquisition is performing and what additional costs, funding needs, or regulatory obligations it may require.
- Progress in remediating the material weakness and any further developments in PRC, VIE, or overseas-listing requirements.