Future FinTech Group Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter report. Financial statements are in U.S. dollars unless noted.
Business context and material changes
The company shifted from fruit-juice production and sales toward blockchain-based e-commerce. Chain Cloud Mall (CCM) launched in January 2019, with version 2.0 in June. The filing reports about 6,401 CCM members at year-end, compared with 164 at year-end 2018. The company earns membership fees and product-sale revenue; its cross-border platform NONOGIRL began trial operations in March 2020, with formal launch expected in Q3 2020. CCM version 3.0 launched in May 2020.
After year-end, on February 27, 2020, the company completed the sale of HeDeTang HK and its juice-business subsidiaries for RMB 600,000 (about $85,714). The sold operations were reported as discontinued operations. In March 2020, the board also approved plans to sell two other operations and close four others.
Financial performance and position
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $955,172 | $888,670 |
| Gross profit (loss) | $490,865 | ($86,372) |
| Gross margin | 51.4% | (9.7%) |
| Operating loss | ($12.94 million) | ($190.52 million) |
| Loss from continuing operations | ($13.52 million) | ($174.01 million) |
| Net loss attributable to Future FinTech | ($25.23 million) | ($170.00 million) |
| Cash used in operating activities | ($15.84 million) | ($4.88 million) |
- FY2019 revenue was up about 7.4%. CCM membership fees generated $542,000 (56.7% of revenue), product sales generated $379,000 (39.7%), and other revenue was about $34,000.
- Operating expenses were $13.43 million, including $5.23 million of bad-debt provision and $2.75 million of impairment charges. FY2018 operating expenses included $178.30 million of impairment losses, contributing to the much larger prior-year operating loss.
- Cash and cash equivalents from continuing operations were $539,316 at year-end, versus $253,804 a year earlier. Total assets were $115.98 million and total liabilities were $204.06 million; stockholders’ equity was negative $88.08 million. Reported working capital was negative $107.79 million.
- Balance-sheet current liabilities included $202.79 million, of which $196.26 million related to discontinued operations. Short-term bank loans were $957,990; the filing also reports $1.27 million due to related parties. There was no revolving credit facility.
- Long-term investments were $12.25 million, after a $2.75 million impairment related to the INU digital asset token and investment. The filing reports a $5.23 million bad-debt expense in the income statement; its cash-flow statement reports a different bad-debt provision amount of $8.26 million.
Outlook, risks, and unusual items
- Going concern: The auditor issued an unqualified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern, citing recurring operating losses and a net capital deficiency. Management said it may seek additional equity or debt financing; success and terms are uncertain.
- COVID-19: Office closures and remote work from late January to late March 2020 delayed access to books and records and the audit. The company reported business disruption and warned of possible effects on customers, suppliers, logistics, revenue, liquidity, and its ability to raise capital; the financial impact was not estimable.
- Legal and regulatory exposure: The filing describes significant unresolved or enforced claims involving former juice subsidiaries, including bank borrowing, leasing, construction, supplier-guarantee and investment disputes. Several cases involve assets pledged, seized, or subject to enforcement. Many named subsidiaries were subsequently transferred with HeDeTang HK; investors should verify which liabilities remain with Future FinTech.
- Business-model risks: The company cautions that PRC rules governing e-commerce, data privacy, value-added telecom services, blockchain, and multi-level marketing are uncertain. Authorities could challenge the membership/referral model, and the company operates its China e-commerce business through a variable-interest entity (VIE) controlled by contracts rather than direct ownership.
- Listing and financing: The company reported prior Nasdaq compliance notices, including an equity deficiency notice, and noted that continued listing compliance could depend on filing the 2019 Form 10-K. It also raised funds under a secured convertible note and issued shares to reduce the balance, creating dilution and repayment/financing risk.
- Sale and reporting: The HeDeTang HK sale price was about $85,714, while year-end consolidated discontinued-operation balances included $92.77 million of assets and $196.26 million of liabilities. The filing’s note separately gives HeDeTang HK assets of $64.37 million and liabilities of $196.87 million; the reported scopes and amounts require reconciliation.
- No quantified earnings or revenue guidance is provided. The NONOGIRL launch timing is an expectation, not a financial forecast.
Important facts for investors to verify
- Reconcile the MD&A statement that liabilities decreased by $52.44 million with the balance sheet, which shows total liabilities rising from $149.62 million in 2018 to $204.06 million in 2019.
- Reconcile discontinued-operation balances and sale accounting, including the differing asset and liability totals, sale proceeds, and the allocation of remaining claims after the February 2020 divestiture.
- Review the going-concern plans, near-term cash needs, debt and convertible-note balances, and the potential dilution or cash costs under the note terms.
- Assess collectability of receivables and related-party balances, including the large allowance for doubtful accounts, the differing bad-debt figures, and the $3.40 million due from related parties.
- Verify the status and potential financial exposure of the listed court cases, pledged assets, VIE arrangements, Nasdaq listing requirements, and COVID-19 effects.
- Check reported figures against the audited statements: the filing contains inconsistent descriptions of certain 2018 revenue and loss-per-share figures, and the consolidated cash-flow statement reports ending cash of $662,403 before subtracting discontinued-operation cash, versus $539,316 for continuing operations.