Future FinTech (FTFT) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's financials reflect a major business transformation, with asset and revenue growth offset by higher net losses Condensed Consolidated Balance Sheets Balance Sheet Comparison (Unaudited) | Balance Sheet Items | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $76,572,733 | $15,596,440 | | Cash and cash equivalents | $52,968,840 | $9,425,312 | | Goodwill | $16,727,897 | $0 | | Total Assets | $94,122,813 | $15,931,712 | | Total Liabilities | $10,443,408 | $7,200,571 | | Total Stockholders' Equity | $83,679,405 | $8,731,141 | - Total assets increased significantly, primarily due to a substantial rise in cash and cash equivalents from $9.4 million to $53.0 million, and the addition of $16.7 million in goodwill from an acquisition[7] - Stockholders' equity saw a major increase from $8.7 million to $83.7 million, largely driven by capital raised from the issuance of common stock[7] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Statement of Operations Summary (Unaudited) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $11,745,027 | $43,450 | $12,503,894 | $355,700 | | Gross Profit | $983,084 | $30,056 | $439,383 | $332,249 | | Loss from Operations | ($6,860,427) | ($691,816) | ($9,736,553) | ($2,772,630) | | Net Loss from Continuing Operations | ($6,634,386) | ($2,395,965) | ($9,047,648) | ($5,650,104) | | Net Income (Loss) | ($10,494,177) | ($2,438,927) | ($11,694,964) | $113,613,952 | | Basic EPS | ($0.16) | ($0.07) | ($0.18) | $3.07 | - Revenue for Q3 2021 surged to $11.7 million compared to just $43,450 in Q3 2020, driven by new business lines, though operating expenses also rose sharply[10] - A significant loss from discontinued operations of $3.86 million was recorded in Q3 2021, contributing to the total net loss of $10.5 million for the quarter[10] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (For the Nine Months Ended Sep 30) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($19,812,246) | $561,417 | | Net Cash Used in Investing Activities | ($6,706,933) | ($1,863,550) | | Net Cash Provided by Financing Activities | $68,267,293 | $10,092,349 | | Net Increase in Cash | $43,544,044 | $430,832 | - The company's operations consumed $19.8 million in cash during the first nine months of 2021, a significant shift from providing cash in the same period of 2020[19] - Financing activities were the primary source of cash, providing $68.3 million, mainly from the issuance of common stock, which funded operations and investments[19] Notes to Condensed Consolidated Financial Statements - The company has transformed its business from fruit juice manufacturing to a blockchain e-commerce platform and financial technology services[22] - Multiple new subsidiaries were established in 2021 in China, New York, Dubai, and the UK to expand into supply chain and fintech services[23][24] - The company operates its blockchain e-commerce business in the PRC through a Variable Interest Entity (VIE) structure[24][27] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the business shift to fintech, highlighting massive revenue growth alongside lower margins and higher losses Overview of Our Business - The company has transformed from a fruit juice producer to a holding company focused on a blockchain-based e-commerce platform and fintech services[159] - Expansion into financial services is a key strategy, evidenced by the acquisition of NTAM and a pending acquisition of Khyber Money Exchange Ltd[159] - The company acknowledges significant risks associated with its VIE structure in China and recent PRC government regulatory actions[160][161] Results of Operations Q3 Revenue Breakdown (2021 vs 2020) | Revenue Source | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Coal and Aluminum Ingots Supply Chain | $9,643,977 | $0 | | Asset management service | $2,101,050 | $0 | | CCM Shopping Mall Membership | $0 | $29,779 | | Total | $11,745,027 | $43,450 | - The overall gross margin for Q3 2021 decreased drastically to 8.37% from 69.17% in Q3 2020 due to the shift to lower-margin commodity trading[181] - General and administrative expenses for Q3 2021 increased by 248.66% YoY to $2.24 million, driven by new business development and a new stock compensation expense of $5.49 million[184][185] - Loss from continuing operations for the nine months ended Sep 30, 2021, increased to $9.05 million from $5.65 million in the prior year[206] Liquidity and Capital Resources - As of September 30, 2021, the company had cash and cash equivalents of $52.97 million, a significant increase from $9.43 million at the end of 2020[209] - The increase in cash was primarily due to net cash of $68.27 million provided by financing activities, mainly from the issuance of common stock[211] - Working capital improved to a positive $73.14 million as of September 30, 2021, up from $5.83 million a year prior[209] Quantitative and Qualitative Disclosures about Market Risk The company states that this section is not applicable - The company did not provide quantitative and qualitative disclosures about market risk, stating it is not applicable[212] Controls and Procedures Management identified a material weakness in internal controls due to insufficient accounting expertise and has engaged an outside consultant - Management concluded that disclosure controls and procedures were not effective as of September 30, 2021[213] - The ineffectiveness was attributed to a material weakness: a lack of sufficient accounting personnel with knowledge in U.S. GAAP and SEC reporting[213] - As a remediation measure, the company has engaged an outside consultant to supplement its internal accounting team[214] PART II. OTHER INFORMATION Legal Proceedings The company is defending a lawsuit from a former placement agent claiming approximately $7 million in damages - The company is being sued by its former placement agent, FT Global Capital, Inc., for an alleged breach of an exclusive placement agent agreement[216] - FT Global claims approximately $7,000,000 in damages and attorneys' fees related to securities transactions conducted after the agreement had expired[216] - A U.S. District Court has dismissed the fraud claim but allowed the breach of contract claim to proceed with discovery[217] Risk Factors The company states that this section is not applicable - No new risk factors are reported in this section for the quarter[218] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of securities occurred during the third quarter that were not previously disclosed - The Company did not make any sales of unregistered securities during the three months ended September 30, 2021 that were not previously disclosed[218] Exhibits This section lists the exhibits filed with the Form 10-Q, including agreements, certifications, and Inline XBRL data files - Key exhibits filed with the report include a Loan Agreement, CEO and CFO certifications, and Inline XBRL documents[219]