Future FinTech (FTFT) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Future FinTech Group Inc. Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Future FinTech Group Inc. for the period ended March 31, 2019, including balance sheets, statements of operations and comprehensive income (loss), and cash flows. It also includes detailed notes explaining the basis of presentation, business description, accounting policies, and specific financial items. Condensed Consolidated Balance Sheets This table provides a snapshot of the company's financial position, including assets, liabilities, and equity, as of March 31, 2019, and December 31, 2018 | Metric | March 31, 2019 (Unaudited) | December 31, 2018 | | :-------------------------- | :------------------------- | :------------------ | | Cash and cash equivalents | $514,498 | $253,804 | | Total Current Assets | $19,967,622 | $24,164,227 | | Total Assets | $67,270,696 | $62,946,609 | | Total Current Liabilities | $113,908,612 | $117,173,578 | | Total Liabilities | $146,944,474 | $149,624,445 | | Total Equity | $(79,673,778) | $(86,677,836) | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This table details the company's financial performance, including revenue, gross profit, and net loss, for the three months ended March 31, 2019, and 2018 | Metric | Three months Ended March 31, 2019 | Three months Ended March 31, 2018 | | :------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $196,329 | $562,146 | | Gross profit | $53,255 | $62,586 | | Loss from operations | $(1,510,715) | $(2,780,742) | | Loss from Continuing Operations before Income Tax | $(1,678,798) | $(3,233,340) | | NET LOSS ATTRIBUTABLE TO FUTURE FINTECH GROUP INC. STOCKHOLDERS | $(1,328,656) | $(2,791,926) | | Basic loss per share from net income | $(0.04) | $(0.42) | Condensed Consolidated Statements of Cash Flows) This table summarizes the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2019, and 2018 | Metric | Three months Ended March 31, 2019 | Three months Ended March 31, 2018 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $287,485 | $(487,226) | | Net cash used in investing activities | $0 | $(1,978) | | Net cash provided by financing activities | $499,992 | $0 | | NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | $260,695 | $(1,055,455) | | Cash and cash equivalents, end of period | $514,498 | $3,531,302 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Basis of Presentation This note outlines the accounting principles and rules used in preparing the unaudited interim financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC rules, reflecting normal recurring adjustments. The results for Q1 2019 are not indicative of future periods, and the December 31, 2018 balance sheet is derived from audited statements[10][11] 2. Business Description This note describes the company's business activities, strategic transformation, and organizational structure Business Overview & Transformation The company is transitioning from fruit juice manufacturing to a blockchain e-commerce platform, GlobalKey SharedMall (CCM) - The Company is transforming its business from fruit juice manufacturing and distribution to a real-name blockchain e-commerce platform, GlobalKey SharedMall (Chain Cloud Mall or CCM), due to increased production costs and tightened environmental laws in China[12][13] - CCM v1.0 launched on January 22, 2019, and v2.0 launched on June 1, 2019, offering wider product categories, improved user interface, and enhanced security. The platform uses a 'multi-vendor hosted stores + platform self-hosted stores' model[13][14] - Beyond the blockchain e-commerce platform, the Company also operates a supply chain, logistics, and trading business for fruit juice and other products, and a digital payment system 'DCON' backed by blockchain technology[15] Organizational Structure The company operates through various subsidiaries in the PRC, reflecting a complex and evolving business structure - The Company's activities are primarily conducted by subsidiaries in the PRC, with a complex organizational structure involving numerous entities with diverse business scopes, including food processing, agriculture, trading, and fintech[16][17][18] - Recent additions to the organizational structure include entities focused on blockchain technology development, e-commerce platforms, and digital payment systems, reflecting the Company's strategic shift[39][40][41] Variable Interest Entity (VIE) Agreements The company uses VIE agreements to control and consolidate the operations of its e-commerce subsidiary in China due to foreign ownership restrictions - On July 31, 2019, the Company's wholly-owned subsidiary, CCM Tianjin, entered into Variable Interest Entity (VIE) Agreements with Chain Cloud Mall E-commerce (Tianjin) Co., Ltd. (E-commerce Tianjin) and its shareholders (Mr. Zeyao Xue and Mr. Kai Xu)[51] - These VIE agreements grant CCM Tianjin contractual rights to control and operate E-commerce Tianjin's business, receive substantially all economic benefits, and have an exclusive option to purchase equity interests, in compliance with Chinese laws restricting foreign ownership in certain e-commerce businesses[53][54][55] - Key agreements include an Exclusive Purchase Option Agreement, Equity Pledge Agreement, and Exclusive Technology Consulting and Service Agreement, ensuring control, economic benefits, and security for CCM Tianjin[56][57][59] Principles of Consolidation The consolidated financial statements include the company and its subsidiaries, with intercompany transactions eliminated, prepared under U.S. GAAP - The consolidated financial statements include the accounts of the Company and its subsidiaries, with all material intercompany accounts and transactions eliminated. Financial statements are prepared in accordance with U.S. GAAP, with necessary adjustments made from PRC statutory accounts[62][63] Uses of estimates in the preparation of financial statements Management makes estimates and assumptions in preparing financial statements, which may lead to actual results differing from these estimates - The preparation of financial statements requires management to make estimates and assumptions, particularly in areas such as allowance for doubtful accounts, useful life of assets, staff benefits, and deferred income taxes. Actual results may differ from these estimates[65] Going Concern The company's ability to continue as a going concern relies on the successful execution of its new business strategy and achieving profitability - The Company's ability to continue as a going concern depends on the successful execution of its new business strategy and achieving profitable operations. The financial statements do not include adjustments that might be necessary if the Company cannot continue as a going concern[66][69] - For the first quarter of 2019, the Company began recognizing revenue from its new blockchain-based e-commerce platform[69] Shipping and Handling Costs Shipping and handling amounts billed to customers are revenue, while expenses are reported as a component of selling expenses - Shipping and handling amounts billed to customers are included in sales revenues, while expenses incurred are reported as a component of selling expenses. For Q1 2019, these expenses were $3,243, a decrease from $8,614 in Q1 2018[70] Leases Leases are classified as capital or operating at inception, with rent expense recorded over the lease term - Leases are classified as capital or operating at inception per ASC Topic 840. For leases with rent escalations, monthly rent expense is recorded as the total payments over the lease term, with differences adjusted to a deferred rent account[71] Earnings (loss) per share Basic EPS is calculated by dividing net income by weighted average common shares, while diluted EPS includes potential common shares - Basic EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted EPS accounts for all dilutive potential common shares[72] Recent Accounting Pronouncements The company adopted several new accounting standards, none of which had a material effect on its financial statements - The Company adopted ASU 2018-15 (Intangibles - Goodwill and Other - Internal-use Software) and ASU 2018-07 (Compensation – Stock Compensation), neither of which had a material effect on operations, financial position, or cash flows[73][74] - ASU 2018-02 (Income Statement-Reporting Comprehensive Income) was adopted, allowing reclassification of stranded tax effects from accumulated other comprehensive income to retained earnings due to the Tax Cuts and Jobs Act, but it also had no material effect[76] 3. Inventories This table details the composition and value of the company's inventories, including raw materials and finished goods, at period-end | Category | March 31, 2019 (Unaudited) | December 31, 2018 (Audited) | | :------------------------ | :------------------------- | :-------------------------- | | Raw materials and packaging | $77 thousand | $25 thousand | | Finished goods | $120 thousand | $38 thousand | | Total Inventories | $198 thousand | $63 thousand | 4. Related Party Transaction This note discloses that the company had no sales to related parties and corresponding zero receivables for the reported periods - The Company reported no sales to related parties for the three months ended March 31, 2019, or March 31, 2018, with corresponding zero accounts receivable balances[80] 5. Concentrations This note discusses the company's customer and supplier concentration, highlighting changes in dependency over time - Customer concentration decreased significantly: sales to the five largest customers accounted for approximately 26% of net sales in Q1 2019, down from 100% in Q1 2018. One customer represented 12% of total sales in Q1 2019, compared to over 87% by one customer in Q1 2018[81] - Supplier concentration also changed: one supplier accounted for over 14% of purchases in Q1 2019, whereas no single supplier exceeded 10% in Q1 2018[82] 6. Issuance of common stock and warrants This note details the issuance of common stock and warrants, including their purpose and the proceeds or value received - In April 2017, the Company issued 862,097 shares of common stock at $3.10 per share for $2,672,500 gross proceeds, along with warrants to purchase an equal number of shares at an exercise price of $5.20[83][84] - In November 2017, a subsidiary acquired creditor's rights for approximately $27.3 million, paid partly in cash ($16.4 million) and partly in Company common stock ($10.9 million)[89] - In January 2018, the Company issued 1,200,000 shares of common stock ($9.6 million value) to acquire a 60% ownership interest in DCON digital assets, a blockchain platform[97][98] 7. Intangible Assets This note describes the company's intangible assets, specifically a digital asset related to the DCON blockchain platform, and its amortization - The Company recognized a digital asset related to the DCON blockchain platform as an intangible asset at a purchase price of $9,600,000, amortized over 5 years. Amortization for Q1 2019 was $480,000[110][111] 8. Other Receivables This note details a significant deposit paid for a potential kiwifruit orchard purchase, expected to complete in 2020 - The Company paid a RMB 200 million (approximately $30 million) deposit in Q2 2016 for the potential purchase of a kiwifruit orchard, with the purchase expected to complete in 2020, pending valuation and approvals[112] 9. Long-term Assets This note outlines significant long-term lease payments made for agricultural land, recorded as deposits - The Company made significant long-term lease payments for agricultural land: RMB 250 million (approx. $37.4 million) for a 20,000 mu kiwifruit orchard lease (30 years) and RMB 160 million (approx. $24.0 million) for an 8,000 mu orange orchard lease (20 years), both recorded as deposits[113][114] 10. Discontinued Operation This note explains the classification and winding down of the Huludao Wonder operation due to sustained losses and debt settlement - The Huludao Wonder operation, a concentrated apple juice subsidiary, was classified as a discontinued operation in December 2016 due to sustained operating losses and a winding-down plan. As of March 31, 2019, it no longer incurred income or expenses[116][117] - Huludao Wonder settled its long-term debt in 2018 by transferring its fixed assets to the bank, eliminating future significant cash flows from this discontinued component[116][117] 11. Segment Reporting This note provides financial information by operating segment, reflecting the company's strategic shift to blockchain e-commerce - Starting fiscal 2019, the Company operates in four segments: shared shopping mall membership fee, fruit related products, sales of goods, and others, reflecting a shift from traditional fruit juice business to blockchain-based e-commerce[118][119] Revenue by Segment (in thousands) | Segment | Q1 2019 Revenue (in thousands) | Q1 2018 Revenue (in thousands) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Fruit Related Products | $22 | $501 | | CCM Shopping Mall Membership | $22 | $- | | Sales of Goods | $138 | $- | | Others | $14 | $61 | | Total Revenue from external customers | $196 | $562 | Gross Profit by Segment (in thousands) | Segment | Q1 2019 Gross Profit (in thousands) | Q1 2018 Gross Profit (in thousands) | | :------------------------------------ | :---------------------------------- | :---------------------------------- | | Fruit Related Products | $2 | $46 | | CCM Shopping Mall Membership | $20 | $- | | Sales of Goods | $17 | $- | | Others | $14 | $17 | | Total Segment Gross Profit | $53 | $63 | 12. Commitments And Contingencies (Litigation) This note details the company's involvement in multiple legal proceedings, primarily related to loan defaults and lease fees, with significant judgments against it - The Company and its subsidiaries are involved in multiple legal proceedings, primarily related to unpaid loans and lease fees, with several cases resulting in court rulings against the Company and enforcement actions involving seized assets[126][127][129] - Significant liabilities include a $5.8 million expense and liability recorded in Q3 2018 for alleged defaults on supplier guarantees with Cinda Shaanxi Branch, and judgments totaling approximately $19.62 million (RMB 50 million + RMB 84.97 million) for capital lease fees and equipment financial lease fees with Cinda Capital Financing Co. Ltd[134][135][136] - A former consultant, Andrew Chien, filed a lawsuit claiming $257,000 in damages and 2% of outstanding shares, which was dismissed by the District Court of Connecticut in August 2018, with an appeal currently awaiting decision[147] 13. Entry into a Material Definitive Agreement This note describes a significant securities purchase agreement involving a secured convertible promissory note with Iliad Research and Trading, L.P. - On March 26, 2019, the Company entered into a Securities Purchase Agreement with Iliad Research and Trading, L.P., issuing a Secured Convertible Promissory Note with a principal amount of $1,070,000, bearing 8% interest and convertible at $3.00 per share[149][151] - The purchase price was paid through an initial cash payment of $500,000 and an Investor Note, with the second cash payment of $503,817.92 received on May 2, 2019[149][150] 14. Subsequent Events This note reports on key events occurring after the balance sheet date, including a CFO appointment and a subsidiary sale agreement - On May 16, 2019, Ms. Jing (Veronica) Chen was appointed as the Chief Financial Officer (CFO) of the Company, with an annual compensation of RMB 624,000 (approximately $90,620)[152][155] - On September 18, 2019, SkyPeople Foods Holdings Limited agreed to sell all shares of HeDeTang Holdings (HK) Ltd. to New Continent International Co., Ltd. for approximately US$85,714, subject to shareholder approvals[156] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three months ended March 31, 2019, emphasizing the ongoing business transformation from fruit juice production to a blockchain-based e-commerce platform. It discusses revenue shifts, gross margin changes, operating expenses, and liquidity, highlighting the impact of the new business strategy. Disclaimer Regarding Forward-Looking Statements This disclaimer advises readers that the report contains forward-looking statements subject to risks and uncertainties, which the company does not commit to update - The report contains forward-looking statements based on management's beliefs and assumptions, which are subject to risks and uncertainties. Readers are cautioned not to place undue reliance on these statements, and the Company does not intend to update them except as required by law[158][159] Overview of Our Business This section provides an overview of the company's business, focusing on its strategic transformation and traditional fruit juice operations Business Transformation & Blockchain E-commerce The company is transforming its business model to a blockchain-based e-commerce platform, GlobalKey SharedMall (CCM) - The Company is actively transforming from fruit-related products to a blockchain-based e-commerce platform, GlobalKey SharedMall (CCM), launched in January 2019 (v1.0) and June 2019 (v2.0)[160][161][162] - CCM utilizes blockchain for an automatic value distribution system, sharing platform value with participants, and features an unalterable anti-counterfeit code for product authenticity and direct manufacturer-customer links[163][164] - The platform generates revenue from fixed membership fees (Diamond Elite and Silver Elite programs) and product sales, with members earning CCM-Points for referrals and purchases, which can be used as coupons[168][169][170] - As of June 30, 2019, CCM had approximately 4,014 users, growing from 164 users at December 31, 2018. For Q1 2019, the platform generated approximately $311,101 from 1,209 members and 1,226 orders[166][172] Fruit Juice Business The traditional fruit juice business, now a smaller segment, is seasonal and relies on local raw material purchases - The traditional fruit juice business, including concentrates, beverages, and other fruit-related products, is now classified under 'fruit related products' and represented 38% of revenue in Q1 2019, a significant decrease from 89% in Q1 2018[172][173] - The fruit juice business is highly seasonal, dependent on fruit harvesting, and uses raw materials like apples, pears, and kiwifruits purchased from local markets[172][174] Results of Operations This section analyzes the company's financial performance, including revenue, gross margin, and operating expenses, for the reported periods Revenue This section analyzes the company's revenue performance, highlighting shifts between traditional and new business segments | Segment | Q1 2019 Revenue (in thousands) | Q1 2018 Revenue (in thousands) | Change Amount (in thousands) | % Change | | :--------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :------- | | Fruit related products | $22 | $501 | $(479) | (96)% | | CCM Shopping Mall Membership | $22 | $- | $22 | 100% | | Sales of goods | $138 | $- | $138 | 100% | | Others | $14 | $61 | $(47) | 77% | | Total | $196 | $562 | $(365) | 65% | - Total gross revenue decreased by 65% ($365 thousand) in Q1 2019 compared to Q1 2018, primarily due to a 96% decrease in fruit-related product sales as a result of business transformation[178][180] - New business segments, CCM membership and sales of goods through e-commerce platforms, generated 100% new revenue in Q1 2019, reflecting the Company's strategic shift[181] Gross Margin This section examines changes in the company's gross profit and gross margin across different business segments | Segment | Q1 2019 Gross Profit (in thousands) | Q1 2019 Gross Margin | Q1 2018 Gross Profit (in thousands) | Q1 2018 Gross Margin | | :--------------------------- | :---------------------------------- | :------------------- | :---------------------------------- | :------------------- | | Fruit related products | $2 | 9% | $46 | 20% | | CCM Shopping Mall Membership | $20 | 90% | $- | - | | Sales of goods | $17 | 12% | $- | - | | Others | $14 | 100% | $17 | 11% | | Total/Overall | $53 | 27% | $63 | 28% | - Consolidated gross profit decreased by $0.01 million to $0.05 million in Q1 2019, with the overall gross margin slightly decreasing from 28% to 27%[184] - The gross margin for fruit-related products significantly decreased from 20% to 9% due to lower production activities leading to a higher percentage of fixed costs[185] Operating Expenses This section details the company's operating expenses, including general and administrative, selling, and R&D costs | Expense Category | Q1 2019 Amount (in thousands) | Q1 2019 % of Revenue | Q1 2018 Amount (in thousands) | Q1 2018 % of Revenue | | :--------------------------- | :---------------------------- | :------------------- | :---------------------------- | :------------------- | | General and administrative | $1,482 | 745% | $2,750 | 489% | | Selling expenses | $80 | 41% | $93 | 17% | | R&D expenses | $24 | 12% | $- | - | | Impairment Loss | $(23) | -12% | $- | - | | Total operating expenses | $1,564 | 797% | $2,843 | 506% | - Total operating expenses decreased by $1.51 million in Q1 2019, primarily driven by a $1.27 million decrease in general and administrative expenses due to lower depreciation and amortization costs following an impairment in fiscal year 2018[188][189] - R&D expenses of $0.024 million were incurred in Q1 2019 for developing and maintaining the blockchain-based CCM Shared Shopping Mall, compared to none in Q1 2018[190] Other Income (Expense), Net This section discusses non-operating income and expenses, primarily focusing on changes in interest expenses - Other expenses decreased by $0.28 million to $0.17 million in Q1 2019, mainly due to a $0.25 million reduction in interest expenses. This reduction resulted from the discontinued Huludao Wonder operation repaying its bank loan principal by transferring fixed assets in 2018[192][193] Income Tax This section reports on the company's income tax provision, noting no provision due to incurred losses - The Company reported no income tax provision for the three months ended March 31, 2019, or 2018, as it incurred a loss in both periods[194] Non-controlling Interests This section explains the decrease in net income attributable to non-controlling interests - Net income attributable to non-controlling interests decreased, primarily due to a decrease in net income generated from Shaanxi Qiyiwangguo and SkyPeople (China)[195] Liquidity and Capital Resources This section assesses the company's cash position, working capital, and overall ability to meet short-term obligations - As of March 31, 2019, cash and cash equivalents increased to $0.51 million from $0.25 million at December 31, 2018. However, working capital was negative $93.94 million, a decrease of $37.02 million from negative $56.92 million in Q1 2018, mainly due to a decrease in current assets from revaluation of accounts receivable[195] Off-balance sheet arrangements This section confirms the absence of any off-balance sheet arrangements for the company as of the reporting date - As of March 31, 2019, the Company did not have any off-balance sheet arrangements[196] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there are no applicable quantitative and qualitative disclosures about market risk for the Company. - The Company states that quantitative and qualitative disclosures about market risk are not applicable[196] Item 4. Controls and Procedures This section details the Company's disclosure controls and procedures and reports on any changes to internal control over financial reporting. Disclosure Controls and Procedures Management evaluated and concluded that the company's disclosure controls and procedures were effective as of March 31, 2019 - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2019, and concluded they were effective[196] Changes to Internal Control over Financial Reporting There were no material changes to the company's internal control over financial reporting during the period - There have been no changes to the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[197] PART II. OTHER INFORMATION This part provides additional information, including legal proceedings, risk factors, and other required disclosures. Item 1. Legal Proceedings This section provides a detailed overview of various ongoing legal proceedings involving the Company and its subsidiaries, primarily related to loan defaults, lease fee disputes, and construction payment disagreements. Many cases have resulted in court judgments against the Company, leading to enforcement actions and asset seizures. - SkyPeople China is involved in multiple loan default lawsuits with banks (Beijing Bank, Ningxia Bank, China Construction Bank, SPD Bank Xi'an Branch), resulting in seized real estate, equipment, and land use rights as collateral or repayment[199][200][201][211][212] - The Company faces enforcement proceedings from Cinda Shaanxi Branch for alleged defaults on supplier guarantees totaling approximately $5.8 million, with settlement negotiations ongoing[203][206] - Subsidiaries Guoweimei and Trading Market Mei County Co. are subject to lawsuits from Cinda Capital Financing Co. Ltd. for unpaid capital lease fees and equipment financial lease fees, with court rulings upholding Cinda's claims and enforcement procedures underway[207][208] - Several other subsidiaries are involved in disputes over construction fees, land lease agreements, and transportation contracts, leading to court judgments and ongoing enforcement efforts[214][215][216][217][218] Item 1A. Risk Factors This section indicates that there are no new or updated risk factors to report in this quarterly filing, referring to previous disclosures. - The Company states that Item 1A. Risk Factors is not applicable for this report, implying no new material risk factors have arisen since the last annual report[221] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities or use of proceeds to disclose for the period. - The Company reports no unregistered sales of equity securities and use of proceeds for the period[221] Item 3. Defaults upon Senior Securities This section states that there were no defaults upon senior securities to report. - The Company reports no defaults upon senior securities for the period[221] Item 4. Mine Safety Disclosure This section indicates that mine safety disclosure is not applicable to the Company's operations. - The Company states that mine safety disclosure is not applicable[221] Item 5. Other Information This section states that there is no other information to disclose. - The Company reports no other information to disclose[221] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents. - Exhibits include certifications of the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2) and various XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[221] SIGNATURES This section contains the official signatures of the company's executive officers, certifying the report's accuracy. Signatures The report is duly signed on behalf of Future FinTech Group Inc. by its Chief Executive Officer, Yongke Xue, and Chief Financial Officer, Jing Chen, on September 30, 2019. - The report was signed by Yongke Xue, Chief Executive Officer, and Jing Chen, Chief Financial Officer, on September 30, 2019[223]