UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ____________ to ____________
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| ||
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
TD Holdings, Inc.
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 11, 2023,
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BAIYU HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2023 and December 31, 2022
(Expressed in U.S. dollars, except for the number of shares)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Loans receivable from third parties | ||||||||
| Other current assets | ||||||||
| Inventories, net | ||||||||
| Total current assets | ||||||||
| Non-Current Assets | ||||||||
| Plant and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets | ||||||||
| Total non-current assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Bank borrowings | ||||||||
| Third party loans payable | ||||||||
| Contract liabilities | ||||||||
| Income tax payable | ||||||||
| Lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Convertible promissory notes | ||||||||
| Total current liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Due to related party | ||||||||
| Deferred tax liabilities | ||||||||
| Lease liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 16) | ||||||||
| Equity | ||||||||
| Common stock (par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory surplus reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total BYU Shareholders’ Equity(1) | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total Equity(1) | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
| (1) |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
1
BAIYU HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Expressed in U.S. dollars, except for the number of shares)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | ||||||||||||||||
| - Sales of commodity products – third parties | $ | $ | $ | $ | ||||||||||||
| - Supply chain management services – third parties | ||||||||||||||||
| Total Revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| - Commodity product sales-third parties | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| - Supply chain management services – third parties | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total cost of revenue | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit(loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general, and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses), net | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of beneficial conversion feature relating to issuance of convertible promissory notes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ( | ) | ||||||||||||||
| Total other income, net | ||||||||||||||||
| Net income(loss) before income taxes | ( | ) | ||||||||||||||
| Income tax expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income(loss) | $ | $ | $ | ( | ) | $ | ||||||||||
| Less: Net loss attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||
| Net income attributable to BAIYU Holdings, Inc.’s Stockholders | ( | ) | ||||||||||||||
| Comprehensive income(loss) | ||||||||||||||||
| Net income(loss) | $ | $ | $ | ( | ) | $ | ||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive income(loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Less: Total comprehensive loss attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||
| Comprehensive income(loss) attributable to BAIYU Holdings, Inc.’s Stockholders | ( | ) | ( | ) | ( | ) | ||||||||||
| Income(loss) per share - basic and diluted | ||||||||||||||||
| Income(loss) per share – Basic | $ | $ | $ | ( | ) | $ | ||||||||||
| Income(loss) per share – Diluted | $ | $ | $ | ( | ) | $ | ||||||||||
Weighted Average Shares Outstanding-Basic(1) | ||||||||||||||||
| Weighted Average Shares Outstanding- Diluted | ||||||||||||||||
| (1) |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
2
BAIYU HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in U.S. dollars, except for the number of shares)
| Common Stock | Additional paid-in | Accumulated | Surplus | Accumulated other comprehensive | Non- controlling | Total (Deficit) | ||||||||||||||||||||||||||
| Shares | Amount | capital | Deficit | Reserve | loss | interests | Equity | |||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
| Issuance of common stocks in connection with private placements | ||||||||||||||||||||||||||||||||
| Issuance of common stocks pursuant to exercise of convertible promissory notes | ||||||||||||||||||||||||||||||||
| Beneficial conversion feature relating to issuance of convertible promissory notes | - | |||||||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Issuance of common stocks in connection with private placements | ||||||||||||||||||||||||||||||||
| Issuance of common stocks pursuant to ATM transaction | ||||||||||||||||||||||||||||||||
| Issuance of common stocks pursuant to exercise of convertible promissory notes | ||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to stock incentive stock plan (in Shares) | ||||||||||||||||||||||||||||||||
| Beneficial conversion feature relating to issuance of convertible promissory notes | - | |||||||||||||||||||||||||||||||
| Net income(loss) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustments | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance as of September 30, 2023(1) | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| (1) |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3
BAIYU HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in U.S. dollars, except for the number of shares)
| Common Stock | Additional paid-in | Accumulated | Surplus | Accumulated other comprehensive | Non- controlling | Total
(Deficit) | ||||||||||||||||||||||||||
| Shares | Amount | capital | Deficit | Reserve | income (loss) | interests | Equity | |||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Issuance of common stocks in connection with private placements | - | |||||||||||||||||||||||||||||||
| Issuance of common stocks pursuant to exercise of convertible promissory notes | ||||||||||||||||||||||||||||||||
| Beneficial conversion feature relating to issuance of convertible promissory notes | - | |||||||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Issuance of common stocks in connection with private placements (in Shares) | ||||||||||||||||||||||||||||||||
| Issuance of common stocks pursuant to exercise of convertible promissory notes | ||||||||||||||||||||||||||||||||
| Net Income(loss) | - | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | |||||||||||||||||||||||||||||||
| Balance as of September 30, 2023(1) | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| (1) | On October 30, 2023, The Company completed a 50:1 reverse stock split of our common stock issued and outstanding. All shares and associated amounts have been retroactively restated to reflect the reverse stock split. |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4
BAIYU HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollar)
| For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income(loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Amortization of intangible assets | ||||||||
| Depreciation of plant and equipment | ||||||||
| Amortization of discount on convertible promissory notes | ||||||||
| Amortization of right of use assets | ||||||||
| Amortization of beneficial conversion feature relating to issuance of convertible promissory notes | ||||||||
| Monitoring fee relating to convertible promissory notes | ||||||||
| Interest expense for convertible promissory notes | ||||||||
| Deferred tax liabilities | ( | ) | ( | ) | ||||
| Inventories impairment | ( | ) | ||||||
| Share-based payment stock to service providers | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Other current assets | ( | ) | ||||||
| Escrow account receivable | ||||||||
| Inventories | ( | ) | ||||||
| Prepayments | ( | ) | ( | ) | ||||
| Contract liabilities | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Due to related parties | ( | ) | ||||||
| Due from third parties | ( | ) | ( | ) | ||||
| Due from related parties | ( | ) | ( | ) | ||||
| Income tax payable | ||||||||
| Other current liabilities | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Due to third party loans payable | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of plant and equipment | ( | ) | ( | ) | ||||
| Purchases of operating lease assets | ( | ) | ||||||
| Payment made on loans to related parties | ( | ) | ||||||
| Payment made on loans to third parties | ( | ) | ( | ) | ||||
| Collection of loans from related parties | ||||||||
| Collection of loans from third parties | ||||||||
| Investments in other investing activities | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Repayments made on loans to third parties | ||||||||
| Payments of borrowings to the third parties | ( | ) | ||||||
| Proceeds from issuance of common stock under ATM transaction | ||||||||
| Proceeds from issuance of common stock under private placement transactions | ||||||||
| Proceeds from issuance of convertible promissory notes | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net increase/(decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash at the beginning of period | ||||||||
| Cash at the end of period | $ | $ | ||||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest expense | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
| Issuance of common stocks in connection with conversion of convertible promissory notes | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
5
BAIYU HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND BUSINESS DESCRIPTION
BAIYU Holding, Inc. is a Delaware corporation, incorporated under the laws of the state of Delaware.
On October 19, 2023, the Company has changed the name from TD Holdings, Inc. to BAIYU Holdings, Inc., with market effectiveness on Nasdaq since October 30, 2023.
The
Company primarily conducts business through Shenzhen Baiyu Jucheng Data Technology Co., Ltd., Shenzhen Qianhai Baiyu Supply Chain Co.,
Ltd., Hainan Jianchi Import and Export Co., Ltd., and Shenzhen Tongdow Internet Technology Co., Ltd. to offer the commodity trading business
and supply chain management services to customers in the PRC.
| Name | Background | Ownership | ||
A BVI company Incorporated on March 22, 2018 A holding company |
||||
A Hong Kong company Incorporated on February 14, 2020 |
||||
|
6
The following diagram illustrates our corporate structure as of September 30, 2023.
| (1) | A variable interest entity controlled through contractual arrangements. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| (a) | Basis of presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
The unaudited interim condensed consolidated financial information as of September 30, 2023 and for the nine months ended September 30, 2023 and 2022 have been prepared, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in annual condensed consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K for the fiscal year ended December 31, 2022 previously filed with the SEC on March 10, 2023.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited condensed consolidated financial position as of September 30, 2023 and its unaudited condensed consolidated results of operations for the three months and nine months ended September 30, 2023 and 2022, and its unaudited condensed consolidated cash flows for the nine months ended September 30, 2023 and 2022, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the fiscal year or any future periods.
Use of estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. Significant accounting estimates reflected in the financial statements include: (i) useful lives and residual value of long-lived assets; (ii) the impairment of long-lived assets and investments; (iii) the valuation allowance of deferred tax assets; (iv) estimates of allowance for doubtful accounts, including loans receivable from third parties; and (v) contingencies and litigation.
7
Foreign currency
The Company’s financial information is presented in U.S. dollars (“USD”). The functional currency of the Company is the Chinese Yuan Renminbi (“RMB”), the currency of PRC. Any transactions which are denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China prevailing at the dates of the transactions, and exchange gains and losses are included in the statements of operations as foreign currency transaction gain or loss. The consolidated financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830, Foreign Currency Matters. The financial information is first prepared in RMB and then translated into U.S. dollars at period-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
| (b) | Convertible promissory notes |
Convertible promissory notes are recognized initially at fair value, net of upfront fees, debt discounts or premiums, debt issuance costs and other incidental fees. Upfront fees, debt discounts or premiums, debt issuance costs and other incidental fees are recorded as a reduction of the proceeds received and the related accretion is recorded as interest expense in the consolidated income statements over the estimated term of the facilities using the effective interest method.
| (c) | Beneficial conversion feature |
The Company evaluates the conversion feature to determine whether it was beneficial as described in ASC 470-20. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible promissory notes payable and may not be settled in cash upon conversion, is treated as a discount to the convertible promissory notes payable. This discount is amortized over the period from the date of issuance to the date the notes are due using the effective interest method. If the notes payable is retired prior to the end of their contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the shares of common stock at the commitment date to be received upon conversion.
| (d) | Recent accounting pronouncement |
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Group is currently evaluating the impact of the new guidance on the consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. This guidance also requires certain disclosures for equity securities subject to contractual sale restrictions. The new guidance is required to be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This guidance is effective for fiscal years beginning after 15 December 2023, including interim periods within those fiscal years. Early adoption is permitted. The Group does not expect that the adoption of this guidance will have a material impact on the financial position, results of operations and cash flows.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.
8
3. LOANS RECEIVABLE FROM THIRD PARTIES
| September
30, 2023 |
December 31, 2022 |
|||||||
| Loans receivable from third parties | $ | $ | ||||||
As
of September 30, 2023, the Company has 11 loan agreements compared with 11 loan agreements on December 31, 2022. The Company provided
loans aggregating $
Interest
income of $
As of September 30, 2023 and December 31, 2022 there was no allowance recorded as the Company considers all of the loans receivable fully collectible.
4. INVENTORIES, NET
| September 30 2023 | December 31, 2022 | |||||||
| Zinc ingots | $ | $ | ||||||
| Less: impairment for inventories | ( | ) | ||||||
| Inventories, net | $ | $ | ||||||
For
the nine months ended September 30, 2023, the Company charged back impairment of $
9
5. PLANT AND EQUIPMENT, NET
| September 30, 2023 | December 31, 2022 | |||||||
| Cost: | ||||||||
| Office equipment | $ | $ | ||||||
| Accumulated depreciation: | ||||||||
| Office equipment | $ | ( | ) | $ | ( | ) | ||
| Plant and equipment, net | $ | $ | ||||||
Depreciation
expense was $
6. GOODWILL
| Acquisition of Qianhai Baiyu | Contractual arrangement with Tongdow Internet Technology | Total | ||||||||||
| Balance as of December 31, 2020 (i) | $ | $ | $ | |||||||||
| Foreign currency translation adjustments | ||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | |||||||||
| Additions (ii) | ||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||
| Balance as of December 31, 2022 | $ | $ | $ | |||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ||||||
| Balance as of September 30, 2023 | $ | $ | $ | |||||||||
| (i) |
| (ii) |
Based on an assessment of the qualitative factors, management determined that it is more-likely-than-not that the fair value of the reporting unit is in excess of its carrying amount. Therefore, management concluded that it was not necessary to proceed with the two-step goodwill impairment test. No impairment loss or other changes were recorded, except for the influence of foreign currency translation for the nine months ended September 30, 2023 and the year ended December 31, 2022.
10
7. INTANGIBLE ASSETS
September 30, | December 31, | |||||||
| Customer relationships | $ | $ | ||||||
| Software copyright | ||||||||
| Total | ||||||||
| Less: accumulative amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
The
Company’s intangible assets consist of customer relationships and software copyright. Customer relationships are generally recorded
in connection with acquisitions at their fair value and the software copyrights were purchased in March 2021 and recorded in connection
with the contractual arrangement with Shenzhen Tongdow Internet Technology Co., Ltd. Intangible assets with estimable lives are amortized,
generally on a straight-line basis, over their respective estimated useful lives:
For
the nine months ended September 30, 2023, the Company amortized $
| Period ending September 30, 2023: | Amount | |||
| current year | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total: | $ | |||
8. BANK BORROWINGS
September 30, 2023 | December 31, 2022 | |||||||
| Short-term bank loans: | ||||||||
| Loan from Baosheng County Bank | $ | $ | ||||||
| Bank of Communications | ||||||||
| Total: | ||||||||
In
August 2022, Qianhai Baiyu entered into five loan agreements with Baosheng County Bank to borrow a total amount of RMB
In August 2023, Qianhai Baiyu entered into a
loan agreement with the Bank of Communications, borrowing a total of RMB
For the nine months ended September 30, 2023,
the Company paid interest expense on bank loans of $
11
9. LEASES
The
Company leases two offices under non-cancelable operating leases, two leases with terms of 38 months and the remaining lease term of
The Company determines whether a contract is or contains a lease at the inception of the contract and whether that lease meets the classification criteria of finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
September 30, | December 31, | |||||||
| Right-of-use lease assets, net | $ | $ | ||||||
| Lease Liabilities-current | $ | $ | ||||||
| Lease liabilities-non current | ||||||||
| Total | $ | $ | ||||||
| Remaining lease term and discount rate: | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate |
For
the nine months ended September 30, 2023 and 2022, the Company charged total amortization of right-of-use assets of $
| Period ending September 30, 2023: | Amount | |||
| current year | $ | |||
| 2024 | ||||
| Total lease payments | ||||
| Less: imputed interest | ||||
| Present value of lease liabilities | $ | |||
12
10. OTHER CURRENT LIABILITIES
| September 30, 2023 | December 31, 2022 | |||||||
| Accrued payroll and benefit | $ | $ | ||||||
| Other tax payable | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
11. CONVERTIBLE PROMISSORY NOTES
| September 30, 2023 | December 31, 2022 | |||||||
| Convertible promissory notes – principal | $ | $ | ||||||
| Convertible promissory notes – discount | ( | ) | ( | ) | ||||
| Convertible promissory notes – interest | ||||||||
| Convertible promissory notes, net | $ | $ | ||||||
On October 4, 2021, the Company entered into
a securities purchase agreement with Atlas Sciences, LLC, a Utah limited liability company, pursuant to which the Company issued the
investor an unsecured promissory note on October 4, 2021 in the original principal amount of $
On
May 6, 2022, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, a Utah limited liability
company, pursuant to which the Company issued the investor a convertible promissory note in the original principal amount of $
On
March 13, 2023, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, a Utah limited liability
company, pursuant to which the Company issued the investor a convertible promissory note in the original principal amount of $
13
The
above two unsettled convertible promissory notes, issued on May 6, 2022 and March 13, 2023
have a maturity date of 12 months with an interest rate of
Upon
evaluation, the Company determined that the Agreements contained embedded beneficial conversion features which met the definition of Debt
with Conversion and Other Options covered under the Accounting Standards Codification topic 470 (“ASC 470”). According
to ASC 470, an embedded beneficial conversion feature present in a convertible instrument shall be recognized separately at issuance
by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. Pursuant to the agreements,
the Company shall recognize embedded beneficial conversion features three months after commitment date of $
12. EQUITY
Common stock issued in private placements
On
January 9, 2023, the Company entered into a certain securities purchase agreement with Ms. Huiwen Hu, an affiliate of the Company, and
certain other purchasers who are non-U.S. Persons, (as defined in Regulation S under the Securities Act of 1933, as amended), pursuant
to which the Company agreed to sell an aggregate of
Common stock issued pursuant to the conversion of convertible promissory notes
The
Company settled convertible promissory notes issued on October 4, 2021 of $
The
Company settled convertible promissory notes issued on May 6, 2022 of $
The
Company settled convertible promissory notes of $
Reverse stock split of common stock
On August 8, 2022, The Company completed a five
(5) for one (1) reverse stock split of our issued and outstanding common stock, par value $
On October 30, 2023, The Company completed a fifty
(50) for one (1) reverse stock split of our issued and outstanding common stock, par value $
14
Settlement and Restated Common Stock Purchase Agreement
On
January 19, 2021, the Company entered into a common stock purchase agreement, with White Lion Capital, LLC, a Nevada limited liability
company (the “investor”), and on September 13, 2021, the Company entered into a Settlement and Mutual Release Agreement (the
“Settlement Agreement”) with the investor. Pursuant to the Settlement Agreement, the Company and the investor agreed that
on any trading day selected by the Company, provided that the closing price of the Company’s common stock, par value $
On
December 12, 2022, the Company entered into a Settlement and Restated Common Stock Purchase Agreement (the “Restated Agreement”)
with White Lion Capital, LLC (the “investor”). Pursuant to the Restated Agreement, in consideration for the investor’s
execution and delivery of, and performance under the Restated Agreement, the Company agreed to issue to the investor
According
to the agreement, the company has issued
Warrants
| Number of shares | Weighted average life | Weighted average exercise price | Intrinsic Value | |||||||||||||
| Balance of warrants outstanding and exercisable as of December 31, 2022 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Balance of warrants outstanding and exercisable as of September 30, 2023 | $ | |||||||||||||||
As
of September 30, 2023, the Company had
In connection
with
The Warrants ended on September 30, 2023 are subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions, but not as a result of future securities offerings at lower prices. The warrants did not meet the definition of liabilities or derivatives, and as such they are classified as equity.
15
13. INCOME PER SHARE
Basic
income per share is computed by dividing the net profit or loss by the weighted average number of common shares outstanding during the
period. As of September 30, 2023, the principal amount and interest expense of convertible promissory notes are $
The number of warrants is excluded from the computation as the anti-dilutive effect.
| For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net income(loss) | $ | ( | ) | $ | ||||
| Weighted Average Shares Outstanding-Basic | ||||||||
| Weighted Average Shares Outstanding- Diluted | ||||||||
| Net income per share - basic and diluted | ||||||||
| Net income per share - basic | $ | ( | ) | $ | ||||
| Net income per share - diluted | $ | ( | ) | $ | ||||
| For the Three Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net income | $ | $ | ||||||
| Weighted Average Shares Outstanding-Basic | ||||||||
| Weighted Average Shares Outstanding-Diluted | ||||||||
| Net income per share - basic and diluted | ||||||||
| Net income per share - basic | $ | $ | ||||||
| Net income per share - diluted | $ | $ | ||||||
14. INCOME TAXES
The
Enterprise Income Tax Law of the People’s Republic of China (“PRC tax law”), which was effective on January
1, 2008 and with the latest amended in December 2018, stipulates those domestic enterprises and foreign-invested enterprises are subject
to a uniform tax rate of
The
Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties)
based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the nine months ended September
30, 2023, the Company had no unrecognized tax benefits. Due to uncertainties surrounding future utilization, the Company estimates there
will not be sufficient future income to realize the deferred tax assets for certain subsidiaries and a VIE. As of September 30, 2023
and December 31, 2022, the Company had deferred tax assets of $
16
The Company does not anticipate any significant increase to its liability for unrecognized tax benefit within the next 12 months. The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.
For the nine months ended September 30, 2023 and
2022, the Company had current income tax expenses of $
The
Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The
first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more
likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
15. RELATED PARTY TRANSACTIONS AND BALANCES
| 1) |
| Name | Relationship with the Company | |
| Shenzhen Tongdow International Trade Co., Ltd. (“TD International Trade”) | ||
| Beijing Tongdow E-commerce Co., Ltd. (“Beijing TD”) | ||
| Shanghai Tongdow Supply Chain Management Co., Ltd. (“Shanghai TD”) | ||
| Guangdong Tongdow Xinyi Cable New Material Co., Ltd. (“Guangdong TD”) | ||
| Yangzhou Lishunwu E-commerce Co., Ltd. (Formerly named: Yangzhou Tongdow E-commerce Co., Ltd.) (“Yangzhou TD”) | ||
| Shenzhen Meifu Capital Co., Ltd. (“Shenzhen Meifu”) | ||
| Shenzhen Tiantian Haodian Technology Co., Ltd. (“TTHD”) | ||
| Hainan Tongdow International Trade Co.,Ltd. (“Hainan TD”) | ||
| Yunfeihu modern logistics Co.,Ltd. (“Yunfeihu Logistics”) | ||
| Shenzhen Tongdow Jingu Investment Holding Co., Ltd. (“Shenzhen Jingu”) | ||
| Tongdow E-commerce Group Co., Ltd. (“TD E-commerce”) | ||
| Katie Ou |
| 2) | Balances with related parties |
| - |
| September 30, 2023 | December 31, 2022 | |||||||
| TD E-commerce | $ | $ | ||||||
| Total due to related party | $ | $ | ||||||
| For the Twelve Months Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Tongdow E-trade Limited | $ | $ | ||||||
| Total internal fund transfers | $ | $ | ||||||
In
2021 and 2022, the Company transferred cash in the amount if US$
17
16. COMMITMENTS AND CONTINGENCIES
| 1) | Commitments |
a Non-cancellable operating leases
| Payment due by September 30 | ||||||||||||||||
| Total | 2024 | 2025 | 2026 | |||||||||||||
| Operating lease commitments for property management expenses under lease agreement | $ | $ | $ | $ | ||||||||||||
| 2) | Contingencies |
None.
17. Risks and uncertainties
| (1) | Credit risk |
Assets
that potentially subject the Company to a significant concentration of credit risk primarily consist of cash and cash equivalents and
trade receivables with its customers. The maximum exposure of such assets to credit risk is their carrying amount as of the balance sheet
dates. As of September 30, 2023, approximately $
The Company’s operations are carried out in Mainland China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. In addition, the Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, rates and methods of taxation, and the extraction of mining resources, among other factors.
| (2) | Liquidity risk |
The Company is also exposed to liquidity risk which is the risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, the Company will turn to other financial institutions and the owners to obtain short-term funding to meet the liquidity shortage.
On
May 15, 2023, the Company received a notification letter
from Nasdaq notifying the Company that the minimum bid price per share for its common shares has been below $
The
notification received has no immediate effect on the listing of the Company’s common stock on Nasdaq. Under the Nasdaq Listing
Rules, the Company has until November 13, 2023 to regain compliance. If at any time during such 180-day period the closing bid price
of the Company’s common shares is at least $
18
| (3) | Foreign currency risk |
Substantially all of the Company’s operating activities and the Company’s major assets and liabilities are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts.
The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. Where there is a significant change in value of RMB, the gains and losses resulting from translation of financial statements of a foreign subsidiary will be significant affected.
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Balance sheet items, except for equity accounts | ||||||||
| For the nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Items in the consolidated statements of operations and comprehensive income (loss), and statements of cash flows | ||||||||
| (4) | Economic and political risks |
Our business could be materially and adversely affected by the outbreak of a widespread health epidemic, such as COVID-19, swine flu, avian influenza, severe acute respiratory syndrome, Ebola and Zika; natural disasters, such as earthquakes, snowstorms, storm surges, floods, fires, drought and other extreme weather events and other effects of climate change; or other events, such as wars, acts of terrorism, environmental accidents, power shortages or communication interruptions. The occurrence of a disaster or a prolonged outbreak of an epidemic illness or other adverse public health developments in China or elsewhere in the world could materially disrupt our industry and our business and operations, and have a material adverse effect on our business, financial condition and results of operations. For example, these events could cause a temporary closure of the facilities we use for our operations, significantly disrupt supply chains and logistics services or severely impact consumer behaviors and the operations of merchants, business partners and other participants in our ecosystem. Our operations could also be disrupted if any of our employees or employees of our business partners are suspected of contracting an epidemic disease, since this could require us or our business partners to quarantine some or all of these employees or disinfect the facilities used for our operations. In addition, our revenue and profitability could be materially reduced to the extent that a natural disaster, health epidemic or other outbreak or any change in policy in response to such event harms the global or PRC economy in general.
19
In particular, the global outbreak of the COVID-19 pandemic continued to have a significant negative impact on the global economy in fiscal year 2023, which has adversely affected our business and financial results. From early 2020 to early 2023, the COVID-19 pandemic triggered a series of lock-downs, social distancing requirements and travel restrictions that significantly and negatively affected our various businesses in China, particularly our China commerce and local consumer services businesses. Our key international commerce businesses also experienced a negative impact. The COVID-19 pandemic also presented challenges to our business operations as well as the business operations of our merchants, business partners and other participants in our ecosystem, such as closure of offices and facilities, disruptions to or even suspensions of normal business and logistics operations, as well as restrictions on travel. Starting in December 2022, China has lifted most of the COVID-19-induced travel restrictions and quarantine requirements. From late December 2022 to early 2023, certain parts of China experienced COVID-19 resurgence, which caused significant disruption to our business operations in these regions.
It is not possible to determine the impact of the COVID-19 pandemic on our business operations and financial results going forward, which is highly dependent on numerous factors, including the frequency, duration and spread of the outbreaks of the COVID-19 pandemic (including any new variant with different characteristics) in China or elsewhere, actions taken by governments, the response of businesses and individuals to the pandemic, the impact of the pandemic on business and economic conditions in China and globally, consumer demand, our ability and the ability of merchants, retailers, logistics service providers and other participants in our ecosystem to continue operations in areas affected by the pandemic and our efforts and expenditures to support merchants and partners and ensure the safety of our employees. The COVID-19 pandemic may continue to adversely affect our business and results of operations.
| (5) | Risks related to industry |
The Company sells precious products to customers through our industrial relationship. Sales contracts are entered into with each individual customer. The Company is the principal under the precious metal direct sales model as the Company controls the products with the ability to direct the use of, and obtain substantially all the remaining benefits from the precious metal products before they are sold to its customers. The Company has a single performance obligation to sell metal products to the buyers. Revenue for precious metal trading under direct sales model is recognized at a point in time when the single performance obligation is satisfied when the products are delivered to the customer. We are under the risk of economic environment in general and specific to the precious metal industry and to China as well as changes to the existing governmental regulations.
Commodity trading in China is subject to seasonal fluctuations, which may cause our revenues to fluctuate from quarter to quarter. We generally experience less user traffic and purchase orders during national holidays in China, particularly during the Chinese New Year holiday season in the first quarter of each year. Consequently, the first quarter of each calendar year generally contributes the smallest portion of our annual revenues. Furthermore, as we are substantially dependent on sales of precious metals, our quarterly revenues and results of operations are likely to be affected by price fluctuation under macroeconomic circumstances these years.
As our revenues have grown rapidly in recent years, these factors are difficult to discern based on our historical results, which, therefore, should not be relied on to predict our future performance. Our financial condition and results of operations for future periods may continue to fluctuate. As a result, the trading price of our stock may fluctuate from time to time due to seasonality.
18. SUBSEQUENT EVENTS
On September 29, 2023, the stockholders of the Company approved a form of certificate of amendment of certificate of incorporation (the “Certificate of Amendment”) on September 18, 2023 to (i) effect a reverse stock split of our issued and outstanding common stock to comply with the Nasdaq’s minimum trading price requirement, at a ratio of one-for-twenty to one-for-fifty (with the exact ratio to be set at a whole number within this range as determined by the members of the board of directors (the “Board”) in its sole discretion, and (ii) change the Company’s name to BAIYU Holdings, Inc. (the “Name Change”), with the final decision of whether to proceed with the Name Change and the timing for implementing the Name Change to be determined by the Board in its sole discretion.
On October 19, 2023, the Company filed the Certificate of Amendment to effect the Name Change and a reverse stock split at the split ratio of one-for-fifty (the “Reverse Split”).
As
a result of the reverse stock split, every fifty (
Following the Name Change, any stock certificates that reflect the former name of the Company will continue to be valid. Certificates reflecting the Name Change will be issued in due course as old stock certificates are tendered for exchange or transfer to the Company’s transfer agent.
The new CUSIP number of the common stock following the Reverse Split is 87250W301. The Company’s Common Stock began trading under its new ticker “BYU” on a Reverse Split-adjusted basis on Nasdaq on October 30, 2023.
The Company has evaluated subsequent events to the date the financial statements were issued and has determined that there are no other items to disclose or require adjustments.
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
As of September 30, 2023, the Company had two business lines, which are the commodities trading business and supply chain management services.
Commodities trading business
The commodity trading business primarily involves purchasing non-ferrous metal products, such as aluminum ingots, copper, silver, and gold, from metal and mineral suppliers and then selling to customers. In connection with the Company’s commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help upstream metal and mineral suppliers to sell their metal products, the Company launched its supply chain management service in December 2019. The Company primarily generates revenues from selling bulk non-ferrous commodity products and providing related supply chain management services in the PRC.
For the nine months ended September 30, 2023, the Company recorded revenue of $102,937,623 from commodities trading business and $64,037 from commodity distribution services and other related services, respectively.
The Company sources bulk commodity products from non-ferrous metal and mines or its designated distributors and then sells to manufacturers that need these metals in large quantities. The Company works with upstream suppliers in the sourcing of commodities. Major suppliers include various metal and mineral suppliers such as Xiamen Huarui Zhongying Trading Co., Ltd., Ningbo Dajian Metal Materials Co., Ltd., Shenzhen Fuying Industrial Co., Ltd. and Qingdao Jikai New Material Technology Co., Ltd. Potential customers include companies such as Hainan Lisheng Supply Chain Management Co., Ltd., Shenzhen Jintongyuan Supply Chain Management Co., Ltd., Shenzhen Fuxinbao Supply Chain Management Co., Ltd. and Shenzhen Jingdexuan Trading Co., Ltd.
Supply Chain Management Services and other related services
We offer a distribution service to bulk suppliers of precious metals by acting as a sales intermediary, procuring small to medium-sized buyers through our own professional sales team and channels and distributing the bulk precious metals of the suppliers. Upon executing a purchase order from our sourced buyers, we charge the suppliers with a commission fee ranging from 1% to 2% of the distribution order, depending on the size of the order. We also offer some other supply chain management services business. For the nine months ended September 30, 2023, the Company earned other supply chain management services and other related services revenue of $64,037 with 9 third-party customers, compared with a commodity distribution services revenue of $1,190,976 to 16 third-party customers for the same period ended September 30, 2022.
Competition
The Company mainly competes against other large domestic commodity metal product trading service providers such as Xiamen International Trade and Yijian Shares. Currently, the principal competitive factors in the non-ferrous metals commodities trading business are price, product availability, quantity, service, and financing terms for purchases and sales of commodities.
Applicable Government Regulations
Shenzhen Baiyu Jucheng has obtained all material approvals, permits, licenses and certificates required for our metal product trading operations, including registrations from the local business and administrative department authorizing the purchase of raw materials.
21
Key Factors Affecting Our Results of Operation
The commodities trading industry has been experiencing decreasing demand as a result of China’s overall economic slowdown. We expect competition in the commodities trading business to persist and intensify.
We have a limited operating history, having just started our commodities trading business in late November 2019. We believe our future success depends on our ability to significantly increase sales as well as maintain profitability from our operations. Our limited operating history makes it difficult to evaluate our business and future prospects. You should consider our future prospects in light of the risks and challenges encountered by a company with a limited operating history in an emerging and rapidly evolving industry. These risks and challenges include, among other things,
| ● | our ability to continue our growth as well as maintain profitability; |
| ● | preservation of our competitive position in the commodities trading industry in China; |
| ● | our ability to implement our strategies and make timely and effective responses to competition and changes in customer preferences; and |
| ● | recruitment, training and retaining of qualified managerial and other personnel. |
Our business requires a significant amount of capital in large part due to our need to purchase a bulk volume of commodities and expand our business in existing markets and to additional markets where we currently do not have operations.
Results of Operations
Three Months Ended September 30, 2023 as Compared to Three Months Ended September 30, 2022
| For the Three Months Ended September 30, | Change | |||||||||||||||
| 2023 | 2022 | Amount | % | |||||||||||||
| Revenues | ||||||||||||||||
| - Sales of commodity products – third parties | $ | 33,883,096 | $ | 37,847,831 | $ | (3,964,735 | ) | (10 | )% | |||||||
| - Supply chain management services – third parties | 28,630 | 40,724 | (12,094 | ) | (30 | )% | ||||||||||
| Total revenue | 33,911,726 | 37,888,555 | (3,976,829 | ) | (10 | )% | ||||||||||
| Cost of revenue | ||||||||||||||||
| - Commodity product sales – third parties | (33,916,806 | ) | (38,008,016 | ) | 4,091,210 | (11 | )% | |||||||||
| - Supply chain management services – third parties | (18,157 | ) | (321 | ) | (17,836 | ) | (5556 | )% | ||||||||
| Total cost of revenue | (33,934,963 | ) | (38,008,337 | ) | 4,073,374 | (11 | )% | |||||||||
| Gross profit(loss) | (23,237 | ) | (119,782 | ) | 96,545 | (81 | )% | |||||||||
| Operating expenses | ||||||||||||||||
| Selling, general, and administrative expenses | (3,034,313 | ) | (1,951,604 | ) | (1,082,709 | ) | 55 | % | ||||||||
| Total operating cost and expenses | (3,034,313 | ) | (1,951,604 | ) | (1,082,709 | ) | 55 | % | ||||||||
| Other income, net | ||||||||||||||||
| Interest income | 5,124,728 | 4,659,595 | 465,133 | 10 | % | |||||||||||
| Interest expenses | (129,716 | ) | (149,308 | ) | 19,592 | (13 | )% | |||||||||
| Amortization of beneficial conversion feature relating to issuance of convertible promissory notes | (228,250 | ) | (365,125 | ) | 136,875 | (37 | )% | |||||||||
| Other income, net | 8,227 | 104,961 | (96,734 | ) | (92 | )% | ||||||||||
| Total other income, net | 4,774,989 | 4,250,123 | 524,866 | 12 | % | |||||||||||
| Net income before income taxes | 1,717,439 | 2,178,737 | (461,298 | ) | (21 | )% | ||||||||||
| Income tax expenses | (1,037,781 | ) | (874,815 | ) | (162,966 | ) | 19 | % | ||||||||
| Net income | $ | 679,658 | $ | 1,303,922 | $ | (624,264 | ) | (48 | )% | |||||||
22
Revenue
For the three months ended September 30, 2023, we generate revenue from two sources, including (1) revenue from sales of commodity products, and (2) revenue from supply chain management services. Total revenue decreased by $3,976,829 or 10%, from $37,888,555 for the three months ended September 30, 2022 to $33,991,726 for the three months ended September 30, 2023, among which revenue from commodity trading and supply chain management accounted for 99.9% and 0.1% of our total revenue for the three months ended September 30, 2023. For the three months ended September 30, 2022, revenue from commodity trading and supply chain management accounted for 99.9% and 0.1% of our total revenue for the three months ended September 30, 2022.
(1) Revenue from sales of commodity products
For the three months ended September 30, 2023 and 2022, the Company sold non-ferrous metals to 19 customers at fixed prices, and earned revenues when the product ownership was transferred to its customers. The Company earned revenues of $33,883,096 from sales of commodity products for the three months ended September 30, 2023 compared with $37,847,831 generated from sales of commodity products for the same period in 2022.
(2) Revenue from supply chain management services and other related services
In connection with the Company’s commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help metal and mineral suppliers sell their metal products, the Company launched its supply chain management service business in December 2019, which primarily consisted of loan recommendation services and commodity distribution services. For the three months ended September 30, 2023, the Company provided $28,630 commodity distribution services and other related services to third-party customers compared with $40,724 to the third-party customers for the same period ended September 30, 2022.
Cost of revenue
Our cost of revenue primarily includes cost of revenue associated with commodity product sales and cost of revenue associated with management services of supply chain. Total cost of revenue decreased by $ 4,073,374 or 11% from $38,008,337 for the three months ended September 30, 2022 to $33,934,963 for the three months ended September 30, 2023, primarily due to a decrease of $4,091,210 in cost of revenue associated with commodity product sales from the third-party. The decreased cost of revenue is in line with the decrease in revenue.
Cost of revenue associated with commodity trading
Cost of revenue primarily consists of purchase costs of non-ferrous metal products. For the three months ended September 30, 2023, the Company purchased non-ferrous metal products of $33,916,806 from 11 third-party vendors compared with $38,008,016 from 15 third-party vendors for the three months ended September 30, 2022.
Selling, general, and administrative expenses
Selling, general and administrative expenses increased from $1,951,604 for the three months ended September 30, 2022 to $3,034,313 for the three months ended September 30, 2023, representing an increase of $1,082,709 or 55%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expense, amortizations of intangible assets and convertible promissory notes, professional service fees and finance offering related fees. The increase was mainly attributable to amortizations of intangible assets’ increased by $1.01 million.
Interest income
Interest income was primarily generated from loans made to third parties and related parties. For the three months ended September 30, 2023, interest income was $5,124,728, representing an increase of $465,133, or 10% from $4,659,595 for the three months ended September 30, 2022. The increase was full due to loans made to third-party vendors for the three months ended September 30, 2023.
23
Amortization of beneficial conversion feature and relative fair value of warrants relating to issuance of convertible promissory notes
For the three months ended September 30, 2023, the item represented the amortization of beneficial conversion feature of $228,250 relating to the convertible promissory notes.
For the three months ended September 30, 2022, the item represented the amortization of beneficial conversion feature of $365,125 relating to the convertible promissory notes.
Net income
As a result of the foregoing, net income for the three months ended September 30, 2023 was $679,658, representing a decrease of $624,264 from net income of $1,303,922 for the three months ended September 30, 2022.
Nine Months Ended September 30, 2023 as Compared to nine Months Ended September 30, 2022
| For the Nine Months Ended September 30, | Change | |||||||||||||||
| 2023 | 2022 | Amount | % | |||||||||||||
| Revenues | ||||||||||||||||
| - Sales of commodity products – third parties | $ | 102,937,623 | $ | 138,540,090 | $ | (35,602,467 | ) | (26 | )% | |||||||
| - Supply chain management services – third parties | 64,037 | 1,190,976 | (1,126,939 | ) | (95 | )% | ||||||||||
| Total revenue | 103,001,660 | 139,731,066 | (36,729,406 | ) | (26 | )% | ||||||||||
| Cost of revenue | ||||||||||||||||
| - Commodity product sales – third parties | (103,107,066 | ) | (138,848,770 | ) | 35,741,704 | (26 | )% | |||||||||
| - Supply chain management services – third parties | (41,540 | ) | (6,011 | ) | (35,529 | ) | 591 | % | ||||||||
| Total cost of revenue | (103,148,606 | ) | (138,854,781 | ) | 35,706,175 | (26 | )% | |||||||||
| Gross profit(loss) | (146,946 | ) | 876,285 | (1,023,231 | ) | (117 | )% | |||||||||
| Operating expenses | ||||||||||||||||
| Selling, general, and administrative expenses | (14,108,225 | ) | (6,075,090 | ) | (8,033,135 | ) | 132 | % | ||||||||
| Total operating cost and expenses | (14,108,225 | ) | (6,075,090 | ) | (8,033,135 | ) | 132 | % | ||||||||
| Other income (expenses), net | ||||||||||||||||
| Interest income | 14,482,016 | 13,416,254 | 1,065,762 | 8 | % | |||||||||||
| Interest expenses | (352,938 | ) | (388,750 | ) | 35,812 | (9 | )% | |||||||||
| Amortization of beneficial conversion feature relating to issuance of convertible promissory notes | (713,292 | ) | (898,783 | ) | 185,491 | (21 | )% | |||||||||
| Other income (expense), net | 7,130 | (21,283 | ) | 28,413 | (134 | )% | ||||||||||
| Total other income, net | 13,422,916 | 12,107,438 | 1,315,478 | 11 | % | |||||||||||
| Net income(loss) before income taxes | (832,255 | ) | 6,908,633 | (7,740,888 | ) | (112 | )% | |||||||||
| Income tax expenses | (2,875,040 | ) | (2,585,583 | ) | (289,457 | ) | 11 | % | ||||||||
| Net income(loss) | $ | (3,707,295 | ) | $ | 4,323,050 | $ | (8,030,345 | ) | (186 | )% | ||||||
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Revenue
For the nine months ended September 30, 2023, we generate revenue from the following two sources, including (1) revenue from sales of commodity products and (2) revenue from supply chain management services. Total revenue decreased by $36,729,406 or 26%, from $139,731,066 for the nine months ended September 30, 2022 to $103,001,660 for the nine months ended September 30, 2023, among which revenue from commodity trading and supply chain management accounted for 99.9% and 0.1%, respectively, of our total revenue for the nine months ended September 30, 2023. The decrease of revenue from sales of commodity products is mainly due to COVID-19, as well as the depreciation of RMB against USD for the nine months ended September 30, 2023 compared with the nine months ended September 30, 2022.The extent to which COVID-19 affects our future results will depend on many factors and future developments, including new information about COVID-19 and any new government regulations which may emerge to contain the virus, among others.
(1) Revenue from sales of commodity products
For the nine months ended September 30, 2023, the Company sold non-ferrous metals to 19 third-party customers at fixed prices, and earned revenues when the product ownership was transferred to its customers. The Company earned revenues of $102,937,623 from sales of commodity products compared with $138,540,090 for the same period in 2022.
(2) Revenue from supply chain management services and other related services
In connection with the Company’s commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help metal and mineral suppliers sell their metal products, the Company launched its supply chain management service business in December 2019, which primarily consisted of loan recommendation services and commodity distribution services.
Commodity distribution service fees
The Company utilizes its strong sales and marketing expertise and customer network to introduce customers to large metal and mineral suppliers, and facilitate the metal product sales between the suppliers and the customers. The Company merely acts as an agent in this type of transaction and earns a commission fee based on the percentage of the volume of metal products that customers purchase. Commodity distribution service fees are recognized as revenue when the Company successfully facilitates the sales transactions between the suppliers and the customers. For the nine months ended September 30, 2023, the Company earned commodity distribution commission fees and other related services of $64,037 from 9 third-party vendors compared with commission fees of $1,190,976 from 16 third-party vendors for the nine months ended September 30, 2022.
Cost of revenue
Our cost of revenue primarily includes cost of revenue associated with commodity product sales, cost of revenue associated with management services of supply chain. Total cost of revenue decreased by $35,706,175 or 26% from $138,854,781 for the nine months ended September 30, 2022 to $103,148,606 for the nine months ended September 30, 2023, primarily due to an decrease of $35,741,704 in cost of revenue associated with commodity product sales. The cost of revenue decreased in line with the decrease in sales volume.
Cost of revenue associated with commodity trading
Cost of revenue primarily consists of purchase costs of non-ferrous metal products.
For the nine months ended September 30, 2023, the Company purchased non-ferrous metal products of $103,107,066 from 11 third-party vendors.
For the nine months ended September 30, 2022, the Company purchased non-ferrous metal products of $138,848,770 from 15 third-party vendors.
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Selling, general, and administrative expenses
Selling, general and administrative expenses increased from $6,075,090 for the nine months ended September 30, 2022 to $14,108,225 for the nine months ended September 30, 2023, representing an increase of $8,033,135, or 132%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expense, amortizations of intangible assets and convertible promissory notes, professional service fees and finance offering related fees. The increase was mainly attributable to amortizations of intangible assets’ increase by $3.06 million.
Interest income
Interest income was primarily generated from loans made to third parties and related parties. For the nine months ended September 30, 2023, interest income was $14,482,016 representing an increase of $1,065,762, or 8% from $13,416,254 for the nine months ended September 30, 2022.There is no big difference between interest income for the nine months ended September 30, 2023 and for the nine months ended September 30, 2022.
Amortization of beneficial conversion feature and relative fair value of warrants relating to issuance of convertible promissory notes
For the nine months ended September 30, 2023, the item represented the amortization of beneficial conversion feature of $713,292 relating to the convertible promissory notes.
For the nine months ended September 30, 2022, the item represented the amortization of beneficial conversion feature of $898,783 relating to the convertible promissory notes.
Net income(loss)
As a result of the foregoing, net loss for the nine months ended September 30, 2023 was $3,707,295, representing a decrease of $8,030,345 from net income of $4,323,050 for the nine months ended September 30, 2022.
Cash Flows and Capital Resources
We have financed our operations primarily through shareholder contributions, cash flow from operations, borrowings from third parties and related parties, and equity financing through private placement and public offerings of our securities.
As reflected in the accompanying unaudited condensed consolidated financial statements, the Company incurred net loss of $3,707,295 and cash inflow of $1,053,820 for the nine months ended September 30, 2023. As of September 30, 2023, the Company positive working capital of $192 million.
During the nine months ended September 30, 2023, the cash provided by financing activities was mainly attributable to cash raised of $42,350,000 from certain private placements by the issuance of 35,000,000 shares of common stock, cash raised of $559,073 from a registered direct offering by the issuance of 689,306 shares of common stocks, cash raised of $3,000,000 from the issuance of unsecured senior convertible promissory notes in the aggregate principal amount of $3,320,000,cash raised of $9,800,000 from certain private placements by the issuance of 28,000,000 shares of common stock.
The Company expects to use the proceeds from the equity financing as working capital to expand its commodity trading business.
Based on the foregoing capital market activities, the management believes that the Company will continue as a going concern in the following 12 months.
Statement of Cash Flows
The following table sets forth a summary of our cash flows. For the nine months ended September 30, 2023 and 2022, respectively:
| For the nine months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net Cash Provided by Operating Activities | $ | 1,053,819 | $ | 3,604,608 | ||||
| Net Cash Used in Investing Activities | (64,651,465 | ) | (63,248,744 | ) | ||||
| Net Cash Provided by Financing Activities | 56,004,311 | 59,889,728 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 8,140,537 | (1,872,016 | ) | |||||
| Net increase/(decrease) in cash and cash equivalents | 547,202 | (1,626,424 | ) | |||||
| Cash at the beginning of period | 893,057 | 4,311,068 | ||||||
| Cash at the end of period | $ | 1,440,259 | $ | 2,684,644 | ||||
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Net Cash Provided by Operating Activities
During the nine months ended September 30, 2023, we had a cash inflow from operating activities of $1,053,819, an decrease of $2,550,789 from a cash inflow of $3,604,608 for the nine months ended September 30, 2022. We incurred a net loss for the nine months ended September 30, 2023 of $3,707,295, an decrease of $8,030,345 from the nine months ended September 30, 2022, during which we recorded a net income of $4,323,050.
In addition to the change in profitability, the decrease in net cash used in operating activities was the result of several factors, including (1) non-cash effects adjustments include amortization of intangible assets of $6,002,628 and amortization of discount on convertible promissory notes of $200,000, amortization of beneficial conversion feature of convertible promissory notes of $713,292 and interest expenses for convertible promissory notes of $245,506.
Net Cash Used in Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2023 was $64,651,466 as compared to net cash used in investing activities of $63,248,744 from continuing operations for the nine months ended September 30, 2022.
The cash used in investing activities for the nine months ended September 30, 2023 was for the loans disbursed to third parties of $122,971,023, collected loans from third parties of $58,413,241.
Net Cash Provided by Financing Activities
During the nine months ended September 30, 2023, the cash provided by financing activities was mainly attributable to cash raised of $42,350,000 from certain private placements by the issuance of 35,000,000 shares of common stocks, cash raised of $559,073 from a registered direct offering by the issuance of 689,306 shares of common stocks, cash raised of $3,000,000 from issuance of unsecured senior convertible promissory notes in the aggregate principal amount of $3,320,000,cash raised of $9,800,000 from certain private placements by the issuance of 28,000,000 shares of common stock.
During the nine months ended September 30, 2022, the cash provided by financing activities was mainly attributable to cash raised of $45,500,000 from certain private placements by the issuance of 13,000,000 shares of common stocks, cash raised of $11,420,000 from certain private placements by the issuance of 11,420,000 shares of common stocks and cash raised of $3,000,000 from issuance of unsecured senior convertible promissory notes.
Off-balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2023.
Contractual Obligations
As of September 30, 2023, the Company had one lease arrangement with one unrelated third-party with a monthly rental fee of approximately $10,813. Lease term were within 38 months, which will be due in December 2024. As of the date of this report, the Company cannot reasonably assess whether it will renew the lease term. The lease commitment was as following table:
| Less than | ||||||||||||||||
| Total | 1 year | 1-2 years | Thereafter | |||||||||||||
| Contractual obligations: | ||||||||||||||||
| Operating lease | $ | 111,389 | $ | 95,476 | $ | 15,913 | $ | - | ||||||||
| Total | $ | 111,389 | $ | 95,476 | $ | 15,913 | $ | - | ||||||||
Critical Accounting Policies
Please refer to Note 2 of the Condensed Consolidated Financial Statements included in this Form 10-Q for details of our critical accounting policies.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of September 30, 2023.
Certain personnel primarily responsible for preparing our financial statements require additional requisite levels of knowledge, experience and training in the application of U.S. GAAP commensurate with our financial reporting requirements. The management thought that in light of the inexperience of our accounting staff with respect to the requirements of U.S. GAAP-based reporting and SEC rules and regulations, we did not maintain effective controls and did not implement adequate and proper supervisory review to ensure that significant internal control deficiencies can be detected or prevented.
Management’s assessment of the control deficiency over accounting and finance personnel as of September 30, 2023 includes:
| ● | There is a lack of formal procedures for handling different types of revenue recognition. |
| ● | There is a lack of procedures and documentation for dealing with related parties. |
| ● | There was no accountant with adequate U.S. GAAP knowledge working in the Company’s Accounting Department. |
| ● | The Company has insufficient written policies and procedures for accounting and financial reporting, which led to an inadequate financial statement closing process. |
Based on the above factors, management concluded that the control deficiency over accounting and finance personnel was the material weakness as of September 30, 2023, as our accounting staff continues to lack sufficient U.S. GAAP experience and requires further substantial training.
Limitations on the Effectiveness of Disclosure Controls. Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is also based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2023, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
As of the date of this Quarterly Report, except for certain additional risk factors disclosed on our Quarterly Report on Form 10-Q filed with the SEC on August 11, 2023, there have been no material changes to the risk factors disclosed in our annual report on Form 10-K filed with the SEC on March 10, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Common stock issued pursuant to the conversion of convertible promissory notes
The Company settled convertible promissory notes issued on October 4, 2021 of $125,000 on December 30, 2022, $125,000 on January 10, 2023, $125,000 on January 18, 2023, $250,000 on February 2, 2023, $250,000 on March 2, 2023, $250,000 on April 5, 2023, and $102,214.66 on June 20, 2023 respectively, and issued 148,399, 147,824, 147,475, 292,987, 279,567, 357,142, and 208,976 shares of the Company’s common stock on January 6, 2023, January 12, 2023, January 18, 2023, February 3, 2023, March 2, 2023, on April 10, 2023, and June 21, 2023 respectively for the nine months ended September 30, 2023.
The Company settled convertible promissory notes issued on May 6, 2022 of $200,000 on January 18, 2023, $200,000 on February 3, 2023, $175,000 on February 8, 2023, $250,000 on February 15, 2023, $250,000 on March 8, 2023, $125,000 on March 24, 2023,and $150,000 on September 14, 2023, respectively, and issued 235,960, 234,389, 205,090, 292,987, 279,567, 145,660 and 1,153,846 shares of the Company’s common stock on January 19, 2023, February 6, 2023, February 8, 2023, February 15, 2023, March 15, 2023, March 29, 2023,and September 15,2023, respectively for the nine months ended September 30, 2023.
The Company settled convertible promissory notes issued on March 13, 2023 of $300,000 on September 7, and issued 2,091,466 shares of the Company’s common stock on September 12,2023, for the nine months ended September 30, 2023.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| * | Previously filed |
| ** | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BAIYU HOLDINGS, INC. | ||
| Date: November 14, 2023 | By: | /s/ Renmei Ouyang |
| Name: | Renmei Ouyang | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| By: | /s/ Wenhao Cui | |
| Name: | Wenhao Cui | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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