Future FinTech (FTFT) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company presents unaudited condensed consolidated financial statements showing a net loss of $5.04 million for the six months ended June 30, 2022 Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $66,452,075 | $72,721,055 | | Total Assets | $85,734,516 | $91,657,085 | | Total Current Liabilities | $6,973,366 | $7,230,668 | | Total Liabilities | $10,709,974 | $10,802,927 | | Total Stockholders' Equity | $75,024,542 | $80,854,158 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $7,418,277 | $1,346,924 | $10,884,642 | $1,354,423 | | Gross Profit | $1,375,420 | $51,265 | $3,163,397 | $51,855 | | Loss from Operations | ($2,842,455) | ($749,563) | ($5,518,926) | ($2,280,571) | | Net Loss | ($2,336,688) | ($403,478) | ($5,035,059) | ($1,200,787) | | Basic Loss Per Share | ($0.03) | ($0.01) | ($0.07) | ($0.02) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($5,129,561) | ($3,077,432) | | Net Cash Used in Investing Activities | ($5,985,370) | ($7,308) | | Net Cash Provided by Financing Activities | $4,136,402 | $66,884,621 | | Net (Decrease) Increase in Cash | ($8,242,297) | $62,591,026 | | Cash and Cash Equivalents, End of Period | $42,031,220 | $72,016,338 | Corporate Information and Business Transformation The company has transitioned from fruit juice production to a diversified fintech business with a global presence - The Company has transformed its business from fruit juice manufacturing to a real-name blockchain e-commerce platform, supply chain financing services, asset management, and cryptocurrency market data services[20] - A significant number of new subsidiaries were established in 2021 and 2022 to support expansion into new business areas and geographies, including FTFT Capital Investments in Dubai, FTFT UK Limited in the UK, FTFT Supercomputing Inc. for crypto mining, and FTFT Paraguay S.A. for crypto mining in Paraguay[21][22][23] - The company's blockchain e-commerce business is conducted through a Variable Interest Entity (VIE), Cloud Chain E-Commerce (Tianjin) Co., Ltd., in the PRC[24] Significant Accounting Policies Key policies include VIE consolidation, segment reclassification, and a going concern warning due to operating losses - The company consolidates its Variable Interest Entity (VIE) in China, E-Commerce Tianjin, as it is considered the primary beneficiary through contractual arrangements[27][67] - Several subsidiaries were disposed of or deregistered in 2021 and 2022, with their operating results presented as discontinued operations[28][126] - The company incurred operating losses of $5.03 million and had negative operating cash flows of $5.13 million as of June 30, 2022, which raises substantial doubts about its ability to continue as a going concern[31] Acquisition of Nice Talent Asset Management The company acquired a 90% stake in Hong Kong-based Nice Talent Asset Management for approximately $18.07 million - The company acquired 90% of Nice Talent Asset Management Limited for HK$144,000,000 (approximately $18.07 million) on August 6, 2021[95][99] - The acquisition generated goodwill of $17.16 million, with the purchase price paid in company common stock and 40% contingent on future performance[94][99] Segment Reporting The company's strategic shift is reflected in asset management becoming the largest segment by revenue and gross profit Segment Revenue and Gross Profit (Six Months Ended June 30, 2022) | Segment | Revenue | Gross Profit | | :--- | :--- | :--- | | Asset management service | $7,152,808 | $3,026,301 | | Coal and Aluminum Ingots supply chain financing/trading | $3,654,982 | $60,256 | | Others | $76,852 | $76,840 | | Total | $10,884,642 | $3,163,397 | Segment Revenue and Gross Profit (Six Months Ended June 30, 2021) | Segment | Revenue | Gross Profit | | :--- | :--- | :--- | | Coal and Aluminum Ingots supply chain financing/trading | $1,347,785 | $51,252 | | CCM Shopping Mall Membership | $85 | $85 | | Others | $6,553 | $518 | | Total | $1,354,423 | $51,855 | - The company's shift in business focus is evident, with new segments like asset management and supply chain financing becoming the primary revenue drivers, while the former e-commerce membership model has ceased generating revenue[129][130] Commitments and Contingencies The company is vigorously defending a lawsuit from its former placement agent claiming approximately $7 million in damages - FT Global Capital, Inc. filed a lawsuit in January 2021, claiming approximately $7,000,000 in damages and fees related to an alleged breach of a placement agent agreement from July 2020[136] - The court has dismissed some of FT Global's claims but allowed others to proceed, and the company will continue to vigorously defend the action[137] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew significantly due to new business segments, but rising expenses led to an increased operating loss Revenue Comparison (Six Months Ended June 30) | Segment | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Asset management service | $7,152,808 | $0 | +$7,152,808 | N/A | | Coal and Aluminum Ingots Supply Chain Financing/Trading | $3,654,982 | $1,347,785 | +$2,307,197 | +171.18% | | CCM Shopping Mall Membership | $0 | $85 | ($85) | (100.00)% | | Total Revenue | $10,884,642 | $1,354,423 | +$9,530,219 | +703.64% | - The significant revenue growth was primarily driven by the new asset management business and the expansion of the supply chain financing/trading business[197][198] - Operating expenses for the six months ended June 30, 2022, increased to $8.68 million from $2.33 million in the prior year, mainly due to higher professional service, consulting, and R&D fees[205][206] - The company's liquidity decreased, with cash and cash equivalents falling to $42.03 million, and net cash used in operating activities increasing to $5.13 million[214][215] Quantitative and Qualitative Disclosures about Market Risk This section is not applicable for the reporting period - Not applicable[217] Controls and Procedures Disclosure controls and procedures were deemed ineffective due to a material weakness in internal financial reporting controls - Management identified a material weakness in internal control over financial reporting[218] - The weakness stems from a lack of sufficient accounting personnel with appropriate knowledge and experience in U.S. GAAP and SEC reporting[218] - To remediate the issue, the company has engaged an outside consultant to supplement its internal accounting team[219] PART II. OTHER INFORMATION Legal Proceedings The company is defending an ongoing lawsuit from a former placement agent claiming approximately $7 million in damages - A lawsuit was filed by former placement agent FT Global Capital, Inc. in January 2021, claiming approximately $7,000,000 in damages and attorneys' fees[220] - The lawsuit relates to an alleged breach of an exclusive placement agent agreement from July 2020, which the company disputes[220] - The case is ongoing, and the company states it will continue to vigorously defend the action[221] Risk Factors This section is not applicable for the reporting period - Not applicable[223] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities to report for the period - None[223] Defaults upon Senior Securities There were no defaults upon senior securities to report for the period - None[223] Mine Safety Disclosure This section is not applicable - Not applicable[223] Other Information There is no other information to report for the period - None[223] Exhibits This section lists key exhibits filed with the Form 10-Q, including loan agreements and officer certifications - Filed exhibits include two loan agreements, officer certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, and various Inline XBRL documents[224]