FDCTECH, INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report Form 10-Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited condensed financial statements and accompanying notes and the other financial information appearing elsewhere in this report. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events. The Company is building a diversified global financial services company driven by proprietary Condor trading technologies, complementary regulatory licenses, and a proven executive team. The Company plans to acquire, integrate, transform, and scale legacy financial service companies. The Company believes its proprietary technology and software development capabilities allow legacy financial services companies immediate exposure to –forex, stocks, ETFs, commodities, digital assets, social/copy trading, and other high-growth fintech markets. From December 2021 onwards, the Company expects to grow from its acquisition strategy, specializing in buying and integrating small to mid-size legacy financial services companies. The Company intends to build a diversified global software-driven financial services company. The Company plans to acquire, integrate, transform, and scale legacy financial service companies. The Company replaces conventional legacy software infrastructure with its regulatory-grade proprietary Condor trading technologies, intending to improve end-user experience, increase client retention, and realize cost synergies. Currently, we have three primary business segments: (1) Technology and Software Development, (2) Wealth Management, and (3) Investment and Margin Brokerage Business. The geopolitical situation in Eastern Europe intensified on February 24, 2022, with Russia’s invasion of Ukraine. The war between the two countries continues to evolve as military activity continues. The United States and certain European countries have imposed additional sanctions on Russia and specific individuals. By the end of August 2022, the Company closed its technical support and development office in Russia. We relocated our personnel to Turkey, which is currently considered a neutral zone. No individual associated with the Company is banned or under the Special Designated Nationals and Blocked Person list. As of the date of this report, there has been no disruption in our operations. 4 Technology & Software Development Business For the nine months ended September 30, 2024, and 2023, the Company had ten (10) and thirteen (13) licensing agreements for its Condor Pro Multi-Asset Trading Platform. The Company continuously negotiates additional licensing agreements with several retail online brokers to use the Condor Pro Multi-Asset Trading Platform. Condor Pro Multi-Asset Trading Platform is available in desktop, web, and mobile versions. The Company is developing the Condor Investing & Trading App, a simplified trading platform for traders with varied experiences in trading stocks, ETFs, and other financial markets from their mobile phones. The Company expects to commercialize the Condor Investing & Trading App by the end of the first quarter of the 2025 fiscal year. Technology & Software Development Revenue & Gross Margins: Nine months ended September 30, 2024 (Unaudited) Nine months ended September 30, 2023 (Unaudited) Revenue, $ 1,086,844 596,623 Cost of sales, $ 119,708 22,503 Gross profit (loss), $ 967,136 574,120 Gross Margins 88.99 % 96.23 % Wealth Management On December 22, 2021, the Company entered into a Share Exchange Agreement (the “Agreement”) with AD Financial Services Pty Ltd ACN 628 331 117 of Level 38/71 Eagle St, Brisbane, Queensland, Australia, 4000 (“ADFP” or “Target”). According to the Agreement, the Company acquired 51% of ADFP’s issued and outstanding shares of capital stock in exchange for 45,000,000 (the “Consideration”) newly issued “restricted” common shares. The operating and licensed entity of ADFP is AD Advisory Services Pty Ltd. ADFP owns one hundred percent (100%) equity interest in AD Advisory Services Pty Ltd (“ADS”). As a result, the Company is 51% owner of ADS. Our wealth management business, AD Advisory Services (ADS), is subject to enhanced regulatory scrutiny and is regulated by multiple regulators in Australia. The Australian Securities and Investments Commission (ASIC) administers a licensing regime for financial services providers. ADS holds an Australian Financial Services License (AFSL) and meets various compliance, conduct, and disclosure obligations. AD Advisory Services Pty Ltd. (ADS) is an Australian-regulated wealth management company with 28 advisors and $530+ million in funds under advice. ADS provides licensing solutions for financial advisers & accountants in Australia. ADS offers financial planners different licensing, compliance, and education solutions to meet their practice’s specific needs. Wealth Management Revenue & Gross Margins: Nine months ended September 30, 2024 (Unaudited) Nine months ended September 30, 2023 (Unaudited) Revenue, $ 4,922,551 4,397,241 Cost of sales, $ 4,461,671 3,966,959 Gross profit (loss), $ 460,880 430,282 Gross margins 9.36 % 9.79 % 5 Margin Brokerage Business (Malta and UK) AML is authorized to deal with its account (market maker) as a Category 3 licensed entity by the MFSA, receive and transmit orders for retail and professional clients, hold and control clients’ money and assets. AML trading platform services in the English, French, German, Italian, and Arabic-speaking markets, whereby customers can trade in currency, commodity, equity, and digital assets-linked derivatives in real time. AML is authorized countries to do business include Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Liechtenstein, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden. In May 2024, Mitchell M. Eaglstein, CEO, was appointed as the CEO of Alchemy Markets Ltd. (AML) to oversee operations in Malta. APL is an investment firm regulated by the Financial Conduct Authority (FCA). It provides investment advice, acts as agent and principal, and safeguards and administers assets in forex, equity, commodities, spread bets, and other financial assets. It is authorized to do business in several countries, including England, Scotland, Wales, and Northern Ireland. Brokerage (Trading) revenue & Gross Margins*: Nine months ended September 30, 2024 (Unaudited) Nine months ended September 30, 2023 (Unaudited) Revenue, $ 12,169,469 1,955,319 Cost of sales, $ 6,363,631 327,110 Gross Profit (loss), $ 5,805,838 1,628,209 Gross Margins 47.71 % 83.27 % Consolidated Financial Summary The Company has prepared consolidated financial statements on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the ordinary business course. The Company generated $34,123,056 in revenues from January 21, 2016 (inception) to September 30, 2024. For the nine months ended September 30, 2024, and 2023, the Company generated $18,178,864 and $6,949,183 in revenues, an increase of over 161.60%. At September 30, 2024, and December 31, 2023, the Company had a cash balance of $27,989,417 and $31,316,461 and an accumulated deficit of $3,488,102 and $2,643,647. Financial Condition at September 30, 2024 On September 30, 2024, the accumulated deficit, cash balance, and working capital surplus were $3,488,102, $27,989,417, and $8,557,179, respectively. Financial Condition at December 31, 2023 On December 31, 2023, the accumulated deficit, cash balance, and working capital surplus were $2,643,647, $31,316,461, and $7,460,959, respectively. On November 30, 2023, Kundnani purchased 2,500,000 Series A Preferred stock of FDCTech for $2.5 million. The Company has issued the Series A Preferred stock to Kundnani. On November 30, 2023, Kundnani purchased 50,000,000 Common stock of the Company for $5.5 million. The Company has issued the Common stock to Kundnani. The Company expects to receive funds by the end of March 2025. Even though we believe that our cash balance is sufficient to fund our operations and growth, the Company plans to raise additional capital as disclosed in Subsequent Events. The Company intends to continue its efforts to enhance its revenue from its diversified portfolio of technological solutions, become cash flow positive, and raise funds through private placement offerings and debt financing. As the Company increases its customer base globally, it intends to acquire long-lived assets that will provide a future economic benefit beyond fiscal 2024. 6 RESULTS OF OPERATIONS Three Months Ended September 30, 2024, compared with Three Months Ended September 30, 2023 The consolidated revenues for the three months ended September 30, 2024, and 2023 were $5,673,008 and $3,703,091, respectively. During the three months ended September 30, 2024, and 2023, the Company incurred a net loss and net income of $649,565 and $689,390. The total revenue breakdown for the three months ended September 30, 2024, and 2023 is below: Three Months Ended September 30, 2024 September 30, 2023 Revenue Description % of Total % of Total Technology Solutions 9.38 % 6.00 % Wealth Management 29.43 % 41.20 % Brokerage 61.19 % 52.80 % Total 100.00 % 100.00 % During the three months ended September 30, 2024, and 2023, the Company incurred general and administrative costs (“G&A”) of $2,754,088 and $674,737 (excluding amortization expenses), respectively. The increase in G&A for the three months ended September 30, 2024, is due to the inclusion of G&A costs of all subsidiaries. The G&A costs were 48.55% and 18.22% of the revenue for the three months ended September 30, 2024, and 2023, respectively. Amortization expenses were $93,541 and $0 for the three months ended September 30, 2024, and 2023, respectively, included in the Cost of sales. The rental expense was $10,861 and $11,039 for the three months ended September 30, 2024, and 2023, respectively. The Company incurred $383,777 and $568,450 in sales, marketing, and advertising costs (“sales and marketing”) for the three months ended September 30, 2024, and 2023. The sales and marketing costs mainly included travel costs for tradeshows, customer meetings, online marketing on industry websites, press releases, and public relations activities. The sales, marketing, and advertising expenses represented 6.76% and 15.35% of the sales for the fiscal year ending September 30, 2024, and 2023, respectively. Nine months Ended September 30, 2024, compared with Nine Months Ended September 30, 2023 The consolidated revenues for the nine months ended September 30, 2024, and 2023 were $18,178,864 and $6,949,183, respectively. During the nine months ended September 30, 2024, and 2023, the Company incurred a net loss and net income of $861,395 and $320,829. The total revenue breakdown for the nine months ended September 30, 2024, and 2023 is below: Nine months Ended September 30, 2024 September 30, 2023 Revenue Description % of Total % of Total Technology Solutions 5.98 % 8.58 % Wealth Management 27.08 % 63.28 % Brokerage 66.94 % 28.14 % Total 100.00 % 100.00 % During the nine months ended September 30, 2024, and 2023, the Company incurred general and administrative costs (“G&A”) of $7,575,616 and $1,629,378 (excluding amortization expenses), respectively. The increase in G&A for the nine months ended September 30, 2024, is due to the inclusion of G&A costs of all subsidiaries. The G&A costs were 48.55% and 18.22% of the revenue for the nine months ended September 30, 2024, and 2023, respectively. Amortization expenses were $119,708 and $22,503 for the nine months ended September 30, 2024, and 2023, respectively, included in the Cost of sales. The rental credit and expense were $27,195 and $23,828 for the nine months ended September 30, 2024, and 2023, respectively. The Company incurred $1,211,724 and $610,274 in sales, marketing, and advertising costs (“sales and marketing”) for the nine months ended September 30, 2024, and 2023. The sales and marketing costs mainly included travel costs for tradeshows, customer meetings, online marketing on industry websites, press releases, and public relations activities. The sales, marketing, and advertising expenses represented 6.67% and 8.78% of the sales for the fiscal year ending September 30, 2024, and 2023, respectively. 7 LIQUIDITY AND CAPITAL RESOURCES On September 30, 2024, and December 31, 2023, we had a cash balance of $27,989,417 and $31,316,461, respectively. At September 30, 2024, and December 31, 2023, the working capital surplus was $8,557,179 and $7,460,959, respectively. The increase in the working capital surplus was mainly due to the acquisition of AML and APL, resulting in an increase in current assets over current liabilities as of September 30, 2024. We generate a substantial portion of our operating income outside the United States, deemed indefinitely reinvested in foreign jurisdictions. Consequently, as outlined under “Cash and Cash Equivalent,” most of our cash and short-term investments are held by our foreign subsidiaries. We do not intend to repatriate these funds and do not foresee a need. We anticipate that our existing domestic cash, short-term investments, and cash flows from operations will be sufficient to fund our domestic operating activities and fulfill our cash commitments for investing and financing activities, such as regular quarterly dividends, debt repayments, and capital expenditures, for at least the next 12 months and for the foreseeable future. Should we require additional capital in the United States beyond what our domestic operations generate—for instance, to fund significant discretionary activities such as business acquisitions or share repurchases—we could choose to repatriate future earnings from foreign jurisdictions or raise capital within the United States through debt or equity issuances. These alternatives may result in higher effective tax rates, increased interest expenses, or dilution of our earnings. We have previously borrowed funds domestically and believe we can continue doing so at reasonable interest rates. In the next twelve (12) months, the Company will continue investing in sales, marketing, product development, new technology solutions, and existing technology support to serve our customers. We expect capital expenditure to increase to $500,000 in the next twelve (12) months to support the growth, including working capital, software development, sales & marketing, and purchasing computers and servers. We expect the combination of existing cash, cash equivalents, cash flows from operations, and access to private equity and capital markets to be sufficient for at least twelve (12) months. The availability of funds will fund our operating activities to meet the need for investing and financing, such as debt maturities and material capital expenditures. However, we may need additional funds to achieve a sustainable sales level to fund our ongoing operations out of revenues. There is no assurance that any additional financing will be available or, if available, on terms that will be acceptable to us. Should we require additional capital, the Company’s operations are insufficient to fund its capital requirements. The Company may attempt to restructure Notes, refinance existing Notes with financial institutions, or raise capital by selling additional capital stock or debt issuance. The Company intends to continue growing its operations and raising funds through private equity and debt financing. Initial Seed Funding in 2016 Between February 22, 2016, and April 24, 2017, the Company borrowed $1,000,000 from FRH Group, a founder and principal shareholder. Effective June 1, 2017, we raised $98,000 through our common stock’s private placement to our officers, directors, friends, relatives, and business associates. Between February 22, 2016, and April 24, 2017, the Company borrowed $1,000,000 from FRH Group, a founder and principal shareholder (“FRH”). The Company executed Convertible Promissory Notes, due between February 28, 2018, and April 24, 2019. The Notes were initially convertible into common stock at $0.10 per share but may be discounted under certain circumstances. In no event will the conversion price be less than $0.05 per share with a maximum of 20,000,000 shares. Going Public in 2019 From January 29, 2019, to February 15, 2019, the Company issued 33,000 registered shares under the Securities Act of 1933 for a cash amount of $4,950. The Company closed its offering effective February 26, 2019. 8 PPP and SBA Funding in 2020 On May 01, 2020, the Company received proceeds of Fifty-Thousand Six Hundred and Thirty-Two ($50,632) from the Promissory Note (“PPP Note”) under the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On May 22, 2020, the Company received proceeds of one hundred and forty-four thousand nine hundred and 00/100 Dollars ($144,900). On July 15, 2020, the Company engaged Kingswood Capital Markets, a Benchmark Investments division, Inc., as its exclusive general financial advisor for strategic corporate planning and investment banking services. On August 25, 2020, the Company and Broker-Dealer terminated all obligations other than maintaining confidentiality with no fees to the Broker-Dealer. The Broker-Dealer agreed to return the 2,745,053 shares of the Company’s common stock. On September 02, 2020, the Company engaged Garden State Securities Inc. (GSS) as its exclusive advisor for the private placement of debt or equity securities to fulfill the Company’s business plan and an offering of debt securities to assist in the Company’s acquisition strategy. On October 05, 2021, the Company and GSS terminated all obligations other than maintaining confidentiality, with no fees to the GSS. The Broker-Dealer agreed to return the 1,750,000 shares of the Company’s common stock. Settlement of FRH Debt and Equity Line of Credit (Investment Agreement) in 2021 On February 22, 2021, the Company entered into an Assignment of Debt Agreement (the “Agreement”) with FRH and FRH Group Corporation. The Company eliminated all four FRH Group convertible notes, including interest, of $1,256,908 in return for the issuance of 12,569,080 of unregistered common stock of the Company (the “Shares”) to FRH. Following the Agreement, FRH assigned the Shares to FRH Group Corporation, also owned by Mr. Hong. On September 27, 2021, the Company engaged EF Hutton, a division of Benchmark Investments, LLC (“EF Hutton”). EF Hutton will act as lead underwriter, deal manager, and investment banker for the proposed firm commitment public offering and uplisting (“Offering”) by the Company in connection with the offering of the Company’s equity, debt, or equity derivative instruments (the “Securities”). The Company engagement expired as of December 31, 2022. On October 04, 2021, the Company filed a prospectus that relates to the resale of up to 22,670,000 shares of our Common Stock issued or issuable to selling shareholders for up to $2,200,000, including (i) up to 2,000,000 shares issued to AD Securities America, LLC, (ii) up to 20,000,000 issuable to White Lion Capital, LLC (“White Lion”), according to a “Purchase Notice Right” under an Investment Agreement and (iii) 670,000 shares issued to White Lion as a commitment fee associated with the Investment Agreement. From October 2021 to February 2022, the Company executed five “Purchase Notice Rights” under an Investment Agreement with White Lion and received a net of $38,824 after deducting financing costs associated with the Investment Agreement. Investment Agreement, Promissory Note, Related Party Investments in 2022 From January 2021 to February 2022, the Company executed five “Purchase Notice Rights” under an Investment Agreement with White Lion and received a net of $33,596 after deducting financing costs associated with the Investment Agreement. From October 2021 to February 2022, the Company received $72,420 from the Investment Agreement. On January 27, 2022, the Company signed a promissory note (‘AJB Note’) with AJB Capital Investments, LLC (‘AJB Capital’), a Delaware limited liability company, for the principal amount of $550,000 with a maturity date of July 27, 2022, and a coupon of 10%. The parties extended the AJB Note maturity date by another nine months till January 23, 2023. As part of the AJB Note, the Company entered into a securities purchase agreement, where AJB Capital will receive equity equal to US $155,000 of the Company’s common stock. The Company issued 2,214,286 common stock valued at $71,521 upon issuance of the Note (the “Shares”) and 1,000,000 3-year cash warrants (‘Warrants’) priced at $0.30. The Warrants and the Shares, collectively known as the ‘Incentive Fee,’ are issued upon execution of the agreement. In April 2022, the Company engaged CIM Securities, LLC as its private placement agent to raise capital. The Company did not raise any funds. On September 30, 2022, the Company issued 30,000,000 restricted common shares for cash valued at $300,000 to Kundnani, considered a related party. 9 Related Party Investments and Acquisitions in 2023 On January 25, 2023, the Company issued 5,309,179 restricted common shares to AJB to compensate for consideration shares related to the AJB Note valued at $60,525. On January 25, 2023, the Company issued 115,000,000 restricted common shares for cash valued at $550,000 to Kundnani, considered a related party. On March 28, 2023, the Company issued 2,000,000 restricted common shares for cash valued at $20,000. At July 31, 2023, the Company sent the notice of termination of the purchase agreement to CIM Securities as future events may result in a change of ownership in the CMA application. The Company terminated the escrow agreement and released $180,000 to increase cash on hand. On November 30, 2023, Kundnani, considered a related party, purchased 2,500,000 Series A Preferred stock of the Company for $2.5 million. The Company has issued the Series A Preferred stock to Kundnani. On November 30, 2023, Kundnani purchased 50,000,000 Common stock of the Company for $5.5 million. The Company has issued the Common stock to Kundnani. The Company expects to receive funds by the end of April 2024. GOING CONCERN CONSIDERATION We have generated revenues of $18,178,864 and $6,949,183 for the nine months ended September 30, 2024, and the recent fiscal year ended December 31, 2023. As of September 30, 2024, and December 31, 2023, the accumulated deficit was $3,488,102 and $2,643,647. Our independent auditors included an explanatory paragraph in their report on the audited financial statements for the fiscal year ending December 31, 2023, and 2022 regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure by our independent auditors. Our financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classifications of liabilities that may result in the Company being unable to continue as a going concern. Critical Accounting Policies and Significant Judgments and Estimates We have based our management’s discussion and analysis of our financial condition and results of operations on our financial statements, which we have prepared following the U.S. generally accepted accounting principles. In preparing our financial statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. In more detail, we have described significant accounting policies in Note 2 of our annual financial statements included in our 10-K for the fiscal year ended December 31, 2023, filed with the SEC on October 15, 2024. We continuously evaluate our critical accounting estimates and judgments required by our policies and update them as appropriate based on changing conditions. JOBS Act Accounting Election We are an “ emerging growth company ,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until those standards apply to private companies. As an emerging growth company, we have applied for an exemption; as a result, the Company may delay the adoption of certain accounting standards until the standards apply to private companies. Off-Balance Sheet Arrangements and Contractual Obligations We have not engaged in any off-balance sheet arrangements as defined in Item 303(c) of the SEC’s Regulation S-B. We had no relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Recent Accounting Pronouncements The amendments in the ASU are effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. We have adopted this ASU as of March 31, 2020 for ASC 606, Revenue Recognition and Amended ASU 2016-02, Leases (Topic 840). The ASU is currently not expected to have a material impact on our consolidated financial statements. While we have described significant accounting policies in more details in Note 2 of our annual financial statements included in our 10-K for the fiscal year ended December 31, 2020, filed with the SEC on April 6, 2020, we believe the accounting policies as described in Note 2 to be critical to the judgments and estimates used in the preparation of our financial statements. 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. Not Applicable.