Future FinTech Group Inc.

Second-quarter 2015 revenue was $12.2 million, up 2% from $12.0 million a year ago. Gross profit was $5.1 million versus $4.6 million last year, and gross margin was 42% compared with 38%. Operating expenses were $1.5 million, or 12% of sales, down from $2.4 million, or 20% of sales. Net income attributable to SkyPeople was $2.1 million, versus $0.05 million in Q2 2014, and EPS was $0.08 versus nil. For the first half, operating cash inflow was $36.7 million; cash, cash equivalents and restricted cash were $63.6 million as of June 30, 2015; total debt was $59.2 million; and working capital was $40 million. Management did not provide a formal next-quarter or full-year revenue/EPS guide, but said current cash on hand, operating cash flow, anticipated receipts and trade credit should fund projected operating cash needs for at least the next 12 months, excluding any potential expansion spending. Capital projects remain under development, including a Suizhong fruit and vegetable processing zone with estimated capex of $4.6 million, an orange processing/distribution center requiring about $48 million, and a Mei County kiwi facility and trading center requiring about $72 million.

The CEO’s core message was that SkyPeople has successfully transformed from a fruit juice concentrate manufacturer into a fruit juice beverage producer, and that this shift is the result of strategic decisions made by the board and management. He also emphasized that fruit juice beverages are now the future of the company, while apple concentrate is a lower-margin, highly competitive product line that is not the focus. His tone was confident but somewhat cautious, with repeated acknowledgement that major projects are behind schedule and need acceleration.

The CFO highlighted stronger operating execution: revenue growth, gross profit of $5.1 million, gross margin of 42%, and a drop in operating expenses to $1.5 million, or 12% of sales. He also cited $63.6 million of cash, cash equivalents and restricted cash, $40 million of working capital, $59.2 million of total debt, and first-half operating cash inflow of $36.7 million. On capital allocation, he said the company believes operations, expected cash receipts, cash on hand and trade credit can cover projected operating cash needs for at least 12 months, while the company is still building out several strategic projects.

The main analyst concern was dilution from the recently filed S-3, and management responded that the filing was only to create flexibility for future financing, not a plan to issue a large amount of stock in the short term. They said no share issuance is currently being discussed by the board and that any future financing would be announced properly. Another question focused on the weak apple concentrate business and the timing of the Mei County facility; management said apple juice is highly competitive and low-margin, while the Mei County project is delayed by permitting and environmental approvals but could start quickly once those are granted.