What happened

Shares of Future FinTech Group (NASDAQ:FTFT) were soaring on Tuesday after the company announced it's raising money by selling stock. This is seen as good news since the company was running low on funds. As of noon EST today, the stock was up 16%.

So what

According to the press release, Future FinTech is selling 3 million shares to institutional investors for $5 per share. The offering is expected to close tomorrow and will gross the company $15 million, though it didn't say what net proceeds would be after covering fees. But one thing's for sure: Future FinTech needs the money. Its most recent quarterly report showed it had less than $1 million on its balance sheet and a mere $43,657 in quarterly revenue. And the report noted a "going concern" with the business: legalese meaning it could fail to meet its financial obligations.

A red rocket prepares to fly over a rising bar chart.

Image source: Getty Images.

This is the second capital raise that Future FinTech has done is recent weeks. On Dec. 30, the company closed on an $8 million deal. For that raise, it issued more than 4.2 million units for $1.90 each. Each unit consisted of one share of common stock and one stock warrant with an exercise price of $2.15 per share (the warrants effectively double the future dilution of shareholder value). 

Now what

Future FinTech stock recently hit investors' radars when it announced its blockchain patents had been approved in China. Then it announced its subsidiary had completed building software that allows e-commerce sites to accept bitcoin as a payment option. The rapid-fire release of positive news seemed a little fishy to me, especially considering this was a fruit juice company that recently shifted to blockchain technology. 

FTFT Chart

FTFT data by YCharts.

I warned investors that Future FinTech was likely about to sell stock to raise money. Too often with obscure stocks like this, news will be released to raise the price per share to make the capital raise more favorable. Today the company is offering its stock for $5 per share, which is 56% below recent highs. But $5 is about 200% higher than where the stock traded just a couple of weeks ago when favorable news started coming out.

Could Future FinTech's blockchain patents in China be revolutionary and lucrative? It's entirely possible. But unless someone understands the patents inside and out, and also understand the market in China, then Future FinTech is a stock to avoid, in my opinion. Its business is ridiculously small compared to its market-cap valuation, and its financial situation is suspect.

For those reasons, if blockchain is something you're interested in, consider buying more-established blockchain stocks -- well-known companies with minimal risk of going under.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.