ITEM 1. FINANCIAL STATEMENTS
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2023 and December 31, 2022
(Expressed in U.S. dollars, except for the
number of shares)
|
|
March 31, |
|
|
December 31, |
|
|
|
2023 |
|
|
2022 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,981,012 |
|
|
$ |
893,057 |
|
Loans receivable from third parties |
|
|
191,630,240 |
|
|
|
143,174,634 |
|
Other current assets |
|
|
4,991,860 |
|
|
|
4,040,477 |
|
Inventories,
net |
|
|
415,718 |
|
|
|
458,157 |
|
Total current
assets |
|
|
199,018,830 |
|
|
|
148,566,325 |
|
|
|
|
|
|
|
|
|
|
Non-Current Assets |
|
|
|
|
|
|
|
|
Plant and equipment, net |
|
|
5,239 |
|
|
|
6,370 |
|
Goodwill |
|
|
162,379,512 |
|
|
|
160,213,550 |
|
Intangible assets, net |
|
|
52,803,772 |
|
|
|
54,114,727 |
|
Right-of-use
assets, net |
|
|
168,458 |
|
|
|
196,826 |
|
Total non-current
assets |
|
|
215,356,981 |
|
|
|
214,531,473 |
|
|
|
|
|
|
|
|
|
|
Total
Assets |
|
$ |
414,375,811 |
|
|
$ |
363,097,798 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
- |
|
|
$ |
1,269 |
|
Bank borrowings |
|
|
1,018,671 |
|
|
|
1,005,083 |
|
Third party loans payable |
|
|
472,842 |
|
|
|
460,587 |
|
Contract liabilities |
|
|
18,395 |
|
|
|
437,148 |
|
Income tax payable |
|
|
12,835,992 |
|
|
|
11,634,987 |
|
Lease liabilities |
|
|
109,977 |
|
|
|
116,170 |
|
Other current liabilities |
|
|
5,654,669 |
|
|
|
5,348,646 |
|
Convertible
promissory notes |
|
|
4,635,456 |
|
|
|
4,208,141 |
|
Total current
liabilities |
|
|
24,746,002 |
|
|
|
23,212,031 |
|
|
|
|
|
|
|
|
|
|
Non-Current Liabilities |
|
|
|
|
|
|
|
|
Due to related party |
|
|
39,291,587 |
|
|
|
38,767,481 |
|
Deferred tax liabilities |
|
|
2,907,489 |
|
|
|
3,059,953 |
|
Lease liabilities |
|
|
62,396 |
|
|
|
84,164 |
|
Total non-current
liabilities |
|
|
42,261,472 |
|
|
|
41,911,598 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
67,007,474 |
|
|
|
65,123,629 |
|
|
|
|
|
|
|
|
|
|
Commitments and
Contingencies (Note 16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Common stock (par value $0.001 per share, 600,000,000 shares authorized; 144,841,328 and 106,742,117 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively)* |
|
|
144,841 |
|
|
|
106,742 |
|
Additional paid-in capital |
|
|
390,154,966 |
|
|
|
344,295,992 |
|
Statutory surplus reserve |
|
|
2,602,667 |
|
|
|
2,602,667 |
|
Accumulated deficit |
|
|
(37,950,132 |
) |
|
|
(38,800,375 |
) |
Accumulated
other comprehensive income |
|
|
(5,939,107 |
) |
|
|
(8,984,925 |
) |
Total TD Shareholders’
Equity |
|
|
349,013,235 |
|
|
|
299,220,101 |
|
|
|
|
|
|
|
|
|
|
Non-controlling interest |
|
|
(1,644,898 |
) |
|
|
(1,245,932 |
) |
Total Equity |
|
|
347,368,337 |
|
|
|
297,974,169 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Equity |
|
$ |
414,375,811 |
|
|
$ |
363,097,798 |
|
* | Retrospectively restated due to five for one Reverse Stock Split, see Note 12 - Reverse stock split of common stock. |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2023 and
2022
(Expressed in U.S. dollars, except for the
number of shares)
| |
For the Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Revenues | |
| | |
| |
- Sales of commodity products – third parties | |
$ | 34,571,288 | | |
$ | 47,583,965 | |
- Supply chain management services – third parties | |
| 6,350 | | |
| 575,151 | |
Total revenue | |
| 34,577,638 | | |
| 48,159,116 | |
| |
| | | |
| | |
Cost of revenues | |
| | | |
| | |
- Commodity product sales-third parties | |
| (34,653,239 | ) | |
| (47,590,576 | ) |
- Supply chain management services-third parties | |
| (40 | ) | |
| (11,602 | ) |
Total operating costs | |
| (34,653,279 | ) | |
| (47,602,178 | ) |
| |
| | | |
| | |
Gross (loss)/profit | |
| (75,641 | ) | |
| 556,938 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Selling, general, and administrative expenses | |
| (2,743,061 | ) | |
| (2,247,707 | ) |
Total operating expenses | |
| (2,743,061 | ) | |
| (2,247,707 | ) |
| |
| | | |
| | |
Net Operating Loss | |
| (2,818,702 | ) | |
| (1,690,769 | ) |
| |
| | | |
| | |
Other income (expenses), net | |
| | | |
| | |
Interest income | |
| 4,449,000 | | |
| 4,390,341 | |
Interest expenses | |
| (109,987 | ) | |
| (110,326 | ) |
Amortization of beneficial conversion feature relating to issuance of convertible promissory notes | |
| (220,652 | ) | |
| (213,367 | ) |
Other income, net | |
| 4,523 | | |
| 95,709 | |
Total other income, net | |
| 4,122,884 | | |
| 4,162,357 | |
| |
| | | |
| | |
Net income before income taxes | |
| 1,304,182 | | |
| 2,471,588 | |
| |
| | | |
| | |
Income tax expenses | |
| (852,905 | ) | |
| (877,731 | ) |
| |
| | | |
| | |
Net income | |
| 451,277 | | |
| 1,593,857 | |
Less: Net loss attributable to non-controlling interests | |
| (398,966 | ) | |
| - | |
Net income attributable to TD Holdings, Inc.’s Stockholders | |
| 850,243 | | |
| 1,593,857 | |
| |
| | | |
| | |
Comprehensive Income | |
| | | |
| | |
Net income | |
| 451,277 | | |
| 1,593,857 | |
Foreign currency translation adjustments | |
| 3,045,818 | | |
| 881,196 | |
Comprehensive Income | |
$ | 3,497,095 | | |
$ | 2,475,053 | |
Less: Total comprehensive loss attributable to non-controlling interests | |
| (398,966 | ) | |
| - | |
Comprehensive income attributable to TD Holdings, Inc.’s Stockholders | |
$ | 3,896,061 | | |
$ | 2,475,053 | |
| |
| | | |
| | |
Income per share - basic and diluted | |
| | | |
| | |
Continuing Operation- income per share – basic* | |
$ | 0.00 | | |
$ | 0.04 | |
Continuing Operation- income per share –diluted* | |
$ | 0.00 | | |
$ | 0.04 | |
Weighted Average Shares Outstanding-Basic* | |
| 140,045,132 | | |
| 39,688,232 | |
Weighted Average Shares Outstanding- Diluted* | |
| 148,121,900 | | |
| 42,710,590 | |
* | Retrospectively restated due to five for one Reverse Stock Split, see Note 12 - Reverse stock split of common stock. |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2023 and
2022
(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 December 31, 2021 | |
| 27,634,830 | | |
$ | 27,635 | | |
$ | 224,900,948 | | |
$ | (42,200,603 | ) | |
| 1,477,768 | | |
$ | 11,666,607 | | |
$ | - | | |
$ | 195,872,355 | |
Issuance
of common stocks in connection with private placements | |
| 13,000,000 | | |
| 13,000 | | |
| 45,487,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 45,500,000 | |
Issuance
of common stocks pursuant to exercise of convertible promissory notes | |
| 1,965,549 | | |
| 1,965 | | |
| 1,802,855 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,804,820 | |
Net
income | |
| - | | |
| - | | |
| - | | |
| 1,593,857 | | |
| - | | |
| - | | |
| - | | |
| 1,593,857 | |
Foreign
currency translation adjustments | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 881,196 | | |
| - | | |
| 881,196 | |
Balance
as of March 31, 2022 | |
| 42,600,379 | | |
$ | 42,600 | | |
$ | 272,190,803 | | |
$ | (40,606,746 | ) | |
| 1,477,768 | | |
$ | 12,547,803 | | |
| - | | |
$ | 245,652,228 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
as of December 31, 2022 | |
| 106,742,117 | | |
$ | 106,742 | | |
$ | 344,295,992 | | |
$ | (38,800,375 | ) | |
| 2,602,667 | | |
$ | (8,984,925 | ) | |
$ | (1,245,932 | ) | |
$ | 297,974,169 | |
Issuance
of common stocks in connection with private placements | |
| 35,000,000 | | |
| 35,000 | | |
| 42,315,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 42,350,000 | |
Issuance
of common stocks pursuant to exercise of convertible promissory notes | |
| 2,409,900 | | |
| 2,410 | | |
| 2,072,590 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,075,000 | |
Issuance
of common stocks pursuant to ATM transaction | |
| 689,306 | | |
| 689 | | |
| 558,384 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 559,073 | |
Beneficial
conversion feature relating to issuance of convertible promissory notes | |
| - | | |
| - | | |
| 913,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 913,000 | |
Net
income (loss) | |
| - | | |
| - | | |
| - | | |
| 850,243 | | |
| - | | |
| - | | |
| (398,966 | ) | |
| 451,277 | |
Foreign
currency translation adjustments | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,045,818 | | |
| | | |
| 3,045,818 | |
Balance
as of March 31, 2023 | |
| 144,841,323 | | |
$ | 144,841 | | |
$ | 390,154,966 | | |
$ | (37,950,132 | ) | |
| 2,602,667 | | |
$ | (5,939,107 | ) | |
$ | (1,644,898 | ) | |
$ | 347,368,337 | |
* |
Retrospectively restated
due to five for one Reverse Stock Split, see Note 12 - Reverse stock split of common stock. |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the Three Months Ended March 31, 2023 and
2022
(Expressed in U.S. dollar)
| |
For
the Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Cash Flows from Operating Activities: | |
| | |
| |
Net
income | |
$ | 451,277 | | |
$ | 1,593,857 | |
Adjustments to reconcile net income
to net cash used in operating activities: | |
| | | |
| | |
Depreciation of plant and equipment | |
| 1,215 | | |
| 3,217 | |
Amortization of intangible assets | |
| 2,049,732 | | |
| 1,029,186 | |
Amortization of right of use
assets | |
| 30,846 | | |
| 76,983 | |
Amortization of discount on convertible
promissory notes | |
| 93,333 | | |
| 111,000 | |
Interest expense for convertible
promissory notes | |
| 101,330 | | |
| 93,285 | |
Amortization of beneficial conversion
feature of convertible promissory notes | |
| 220,652 | | |
| 213,367 | |
Monitoring fee relating to convertible
promissory notes | |
| - | | |
| 69,685 | |
Deferred tax liabilities | |
| (194,515 | ) | |
| (209,744 | ) |
Inventories impairment | |
| (17,229 | ) | |
| - | |
Escrow account receivable | |
| - | | |
| (54,985 | ) |
Inventories | |
| 66,033 | | |
| (133,810 | ) |
Other current assets | |
| (24,222 | ) | |
| (29,775 | ) |
Prepayments | |
| 447,960 | | |
| (1,891,842 | ) |
Contract liabilities | |
| (426,158 | ) | |
| 1,900,456 | |
Due to related parties | |
| - | | |
| (21,259 | ) |
Due from third parties | |
| (628,474 | ) | |
| (481,816 | ) |
Due from related parties | |
| (685,488 | ) | |
| 28,897 | |
Accounts payable | |
| (1,291 | ) | |
| (116,078 | ) |
Income tax payable | |
| 1,047,382 | | |
| 1,085,694 | |
Other current liabilities | |
| 259,083 | | |
| 499,661 | |
Lease liabilities | |
| (30,476 | ) | |
| (19,734 | ) |
Due to
third party loans payable | |
| 6,050 | | |
| 6,523 | |
Net cash provided
by operating activities | |
| 2,767,040 | | |
| 3,752,768 | |
Cash Flows from Investing Activities: | |
| | | |
| | |
Purchases of plant and equipment | |
| - | | |
| (5,039 | ) |
Purchases of operating lease assets | |
| - | | |
| (58,617 | ) |
Loans made to third parties | |
| (46,678,620 | ) | |
| (60,177,853 | ) |
Collection of loans from related
parties | |
| - | | |
| 11,066,822 | |
Investments
in other investing activities | |
| (10,707 | ) | |
| (828,601 | ) |
Net cash used
in investing activities | |
| (46,689,327 | ) | |
| (50,003,288 | ) |
| |
| | | |
| | |
Cash Flows from
Financing Activities: | |
| | | |
| | |
Proceeds from issuance of common
stock under ATM transaction | |
| 559,073 | | |
| - | |
Proceeds from issuance of common
stock under private placement transactions | |
| 42,350,000 | | |
| 45,500,000 | |
Proceeds
from convertible promissory notes | |
| 3,000,000 | | |
| - | |
Net cash provided
by financing activities | |
| 45,909,073 | | |
| 45,500,000 | |
| |
| | | |
| | |
Effect
of exchange rate changes on cash and cash equivalents | |
| (898,831 | ) | |
| 13,794 | |
| |
| | | |
| | |
Net increase/(decrease) in cash
and cash equivalents | |
| 1,087,955 | | |
| (736,726 | ) |
Cash and
cash equivalents at beginning of period | |
| 893,057 | | |
| 4,311,068 | |
Cash and cash
equivalents at end of period | |
$ | 1,981,012 | | |
$ | 3,574,342 | |
| |
| | | |
| | |
Supplemental
Cash Flow Information | |
| | | |
| | |
Cash paid for
interest expenses | |
$ | 19,934 | | |
$ | 22,109 | |
Cash paid for
income taxes | |
$ | - | | |
$ | 1,781 | |
| |
| | | |
| | |
Supplemental
disclosure of Non-cash investing and financing activities | |
| | | |
| | |
Right-of-use
assets obtained in exchange for operating lease obligations | |
$ | - | | |
$ | 58,617 | |
Issuance of
common stocks in connection with conversion of convertible promissory notes | |
$ | 2,988,000 | | |
$ | 1,804,820 | |
The accompanying notes are an integral part
of the unaudited condensed consolidated financial statements.
1. ORGANIZATION AND BUSINESS DESCRIPTION
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 providing supply chain management
services to customers in the PRC. Supply chain management services consist of loan recommendation services and commodity product distribution
services.
Name |
|
Background |
|
Ownership |
HC High Summit Holding Limited (“HC High BVI”) |
|
A BVI company Incorporated on March 22, 2018 A holding company |
|
100% owned by the Company |
|
|
|
|
|
TD Internet of Things Technology Company Limited (“TD Internet Technology”) (Formerly Named: Tongdow Block Chain Information Technology Company Limited) |
|
A Hong Kong company Incorporated on February 14, 2020 A holding company |
|
100% owned by HC High BVI |
|
|
|
|
|
Zhong Hui Dao Ming Investment Management Limited (“ZHDM HK”) |
|
A Hong Kong company Incorporated on June 19, 2002 A holding company |
|
100% owned by HC High BVI |
|
|
|
|
|
Tongdow E-trade Limited (“Tongdow HK”) |
|
A Hong Kong company Incorporated on November 25, 2010 A holding company |
|
100% owned by HC High BVI |
|
|
|
|
|
Shanghai Jianchi Supply Chain Co., Ltd. (“Shanghai Jianchi”) |
|
A PRC company and deemed a wholly foreign owned enterprise (“WFOE”) Incorporated on April 2, 2020 Registered capital of $10 million A holding company |
|
WFOE, 100% owned by TD Internet Technology |
|
|
|
|
|
Tongdow (Hainan) Data Technology Co., Ltd. (“Tondow Hainan”) |
|
A PRC limited liability company Incorporated on July 16, 2020 Registered capital of $1,417,736 (RMB10 million) |
|
A wholly owned subsidiary of Shanghai Jianchi |
|
|
|
|
|
Hainan Jianchi Import and Export Co., Ltd. (“Hainan Jianchi”) |
|
A PRC limited liability company Incorporated on December 21, 2020 Registered capital of $7,632,772 (RMB50 million) with registered capital of $0 (RMB0) paid-up |
|
A wholly owned subsidiary of Shanghai Jianchi |
|
|
|
|
|
Shenzhen Baiyu Jucheng Data Techonology Co., Ltd. (“Shenzhen Baiyu Jucheng”) |
|
A PRC limited liability company Incorporated on December 30, 2013 Registered capital of $1,417,736 (RMB10 million) with registered capital fully paid-up |
|
VIE of Hao Limo Technology (Beijing) Co., Ltd. before June 25, 2020, and a wholly owned subsidiary of Shanghai Jianchi |
|
|
|
|
|
Shenzhen Qianhai Baiyu Supply Chain Co., Ltd. (“Qianhai Baiyu”) |
|
A PRC limited liability company Incorporated on August 17, 2016 Registered capital of $4,523,857 (RMB30 million) with registered capital of $736,506 (RMB5 million) paid-up |
|
A wholly owned subsidiary of Shenzhen Baiyu Jucheng |
|
|
|
|
|
Shenzhen Tongdow Internet Technology Co., Ltd. (“Shenzhen Tongdow”) |
|
A PRC limited liability company Incorporated on November 11, 2014 Registered capital of $1,628,320 (RMB10 million) with registered capital of $1,628,320 (RMB10 million) paid-up |
|
VIE of Shenzhen Baiyu Jucheng |
|
|
|
|
|
Yangzhou Baiyu Venture Capital Co. Ltd. (“Yangzhou Baiyu Venture”) |
|
A PRC limited liability company Incorporated on April 19, 2021 Registered capital of $30 million with registered capital of $7 million paid-up |
|
WFOE, 100% owned by Tongdow HK |
|
|
|
|
|
Yangzhou Baiyu Cross-broder E-commerce Co., Ltd. (“Yangzhou Baiyu E-commerce”) |
|
A PRC limited liability company Incorporated on May 14, 2021 Registered capital of $30 million (RMB200 million) with registered capital of $7 million (RMB48 million) paid-up |
|
100% owned by Yangzhou Baiyu Venture |
|
|
|
|
|
Zhejiang Baiyu Lightweight New Material Co., Ltd. (“Zhejiang Baiyu”) |
|
A PRC limited liability company Incorporated on August 5, 2022 Registered capital of $1,483,569 (RMB10 million) |
|
100% owned by Yangzhou Baiyu E-commerce |
The following diagram illustrates our corporate
structure as of March 31, 2023.
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 March 31, 2023 and for the three months ended March 31, 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 March 31, 2023 and its unaudited condensed consolidated results of operations for the three months ended March
31, 2023 and 2022, and its unaudited condensed consolidated cash flows for the three months ended March 31, 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.
(b)
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 related parties, (v) valuation of Inventory, and (vi) contingencies
and litigation.
(c) Foreign currency translation
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.
(d) 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.
(e) 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 notes payable and may not be settled
in cash upon conversion, is treated as a discount to the convertible 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 are 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.
(f)
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.
3. LOANS RECEIVABLE FROM THIRD PARTIES
| |
March
31,
2023 | | |
December 31, 2022 | |
| |
| | | |
| | |
Loans receivable from third parties | |
$ | 191,630,240 | | |
$ | 143,174,634 | |
As of March 31, 2023, the Company has thirteen loan agreements compared
with eleven loan agreements on December 31, 2022. The Company provided loans aggregating $46,678,620 for the purpose of making use of
idle cash and maintaining long-term customer relationship and collected $nil during the three months ended March 31, 2023. These loans
will mature from May 2023 through January 2024, and charge an interest rate of 10.95% per annum on these customers. The company has the
right to pledge account receivable or inventory.
Interest income of $4,448,860 and $4,389,547
was accrued for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023 and December 31, 2022, the Company
recorded an interest receivable of $4,692,132 and $3,337,655 as reflected under “other current assets” in the condensed consolidated
balance sheets.
As of March 31, 2023 and December 31,2022, there
was no allowance recorded as the Company considers all of the loans receivable fully collectible.
4. INVENTORIES, NET
The Company’s inventories consist of aluminum
ingots, etc., that were purchased from third parties for resale to third parties. Inventories consisted of the following:
| |
March 31, 2023 | | |
December 31, 2022 | |
| |
| | |
| |
Aluminum ingots | |
$ | 415,718 | | |
$ | 475,096 | |
Less: impairment for inventories | |
| - | | |
| (16,939 | ) |
Inventories, net | |
$ | 415,718 | | |
$ | 458,157 | |
For the three months ended March 31, 2023, the
Company charged back impairment of $16,939 as the impaired inventories have been sold.
5. PLANT AND EQUIPMENT, NET
| |
March 31, 2023 | | |
December 31, 2022 | |
Cost: | |
| | |
| |
Office equipment | |
$ | 9,867 | | |
$ | 9,747 | |
Accumulated depreciation: | |
| | | |
| | |
Office equipment | |
$ | (4,628 | ) | |
$ | (3,377 | ) |
Plant and equipment, net | |
$ | 5,239 | | |
$ | 6,370 | |
Depreciation expense was $1,215, and currency translation difference
was $36 for the three months ended March 31, 2023. Depreciation expense was $3,217, and currency translation difference was $4 for
the year ended March 31, 2022.
6. GOODWILL
Changes in the carrying amount of goodwill by
segment for the years ended March 31, 2023 and December 31, 2022 were as follows:
| |
Acquisition
of Qianhai Baiyu | | |
Contractual
arrangement
with
Tongdow Internet
Technology | | |
Total | |
| |
| | |
| | |
| |
Balance as
of December 31, 2020 (i) | |
$ | 69,322,325 | | |
$ | - | | |
$ | 69,322,325 | |
Foreign currency translation adjustments | |
| 1,705,958 | | |
| - | | |
| 1,705,958 | |
Balance as of December 31, 2021 | |
$ | 71,028,283 | | |
$ | - | | |
$ | 71,028,283 | |
Additions (ii) | |
| - | | |
| 92,505,479 | | |
| 92,505,479 | |
Foreign currency translation adjustments | |
| (6,005,881 | ) | |
| 2,685,669 | | |
| (3,320,212 | ) |
Balance as of December 31, 2022 | |
$ | 65,022,402 | | |
$ | 95,191,148 | | |
$ | 160,213,550 | |
Foreign currency translation adjustments | |
| 879,052 | | |
| 1,286,910 | | |
| 2,165,962 | |
Balance as of March 31, 2023 | |
$ | 65,901,454 | | |
$ | 96,478,058 | | |
$ | 162,379,512 | |
(i) | The goodwill associated with the Baiyu acquisition was initially
recognized at the acquisition closing date on October 26, 2020. |
(ii) | During the year ended December 31, 2022, the goodwill associated
with the Tongdow Internet Technology acquisition was initially recognized at the acquisition closing date on October 17, 2022. |
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 three months ended March 31, 2023 and the year ended December 31, 2022.
7. INTANGIBLE ASSETS
| |
March 31, 2023 | | |
December 31, 2022 | |
Customer relationships | |
$ | 19,124,816 | | |
$ | 18,869,713 | |
Software copyright | |
| 48,459,625 | | |
| 47,813,227 | |
Total | |
| 67,584,441 | | |
| 66,682,940 | |
| |
| | | |
| | |
Less: accumulative amortization | |
| (14,780,669 | ) | |
| (12,568,213 | ) |
Intangible assets, net | |
$ | 52,803,772 | | |
$ | 54,114,727 | |
The Company’s intangible assets consist
of customer relationships and software copyrights. Customer relationships are generally recorded in connection with acquisitions at their
fair value, one kind of software copyright was purchased in March 2021 and the other kind of software copyright was recorded in connection
with the contractual arrangement with Shenzhen Tongdow Internet Technology Co., Ltd. in October 2022. Intangible assets with estimable
lives are amortized, generally on a straight-line basis, over their respective estimated useful lives: 6.2 years for customer relationships,
6.83 years for one kind of software copyright purchased in March 2021 and 10 years for the other kind of software copyright recorded in
connection with the contractual arrangement with Shenzhen Tongdow Internet Technology Co., Ltd, to their estimated residual values and
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Amortization expense for the three months ended
March 31, 2023 and the year ended December 31, 2022 was $2,049,732 and $4,630,169, respectively. The currency translation difference was
$162,724 for the three months ended March 31, 2023.
No impairment loss was made against the intangible
assets during the three months ended March 31, 2023.
The estimated amortization expense for these
intangible assets in the next five years and thereafter is as follows:
Period ending March 31, 2023: | |
Amount | |
current year | |
$ | 6,127,630 | |
2024 | |
| 8,170,173 | |
2025 | |
| 8,170,173 | |
2026 | |
| 8,170,173 | |
2027 | |
| 5,068,851 | |
Thereafter | |
| 17,096,772 | |
Total: | |
$ | 52,803,772 | |
8. BANK BORROWINGS
Bank borrowings represent the amounts due to
Baosheng County Bank that are due within one year. As of March 31, 2023 and December 31, 2022, bank loans consisted of the following:
| |
March 31, 2023 | | |
December 31, 2022 | |
Short-term bank loans: | |
| | | |
| | |
Loan from Baosheng County Bank | |
$ | 1,018,671 | | |
$ | 1,005,083 | |
In August 2022, Qianhai Baiyu entered into five
loan agreements with Baosheng County Bank to borrow a total amount of RMB7.0 million as working capital for one year, with the maturity
date of August 2023. The five loans bear a fixed interest rate of 7.8% per annum and are guaranteed by Shenzhen Herun Investment Co.,
Ltd, Li Hongbin and Wang Shuang.
9. LEASES
The Company leases two offices under non-cancelable
operating leases, one lease with terms of 38 months and the other lease with terms of 24 months. The Company considers those renewal
or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of
right-of-use assets and lease liabilities. The amortization of right-of-use assets for lease payment is recognized on a straight-line
basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet.
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.
Supplemental consolidated balance sheet information
related to the operating lease was as follows:
| |
March 31, 2023 | | |
December 31, 2022 | |
| |
| | |
| |
Right-of-use lease assets, net | |
$ | 168,458 | | |
$ | 196,826 | |
| |
| | | |
| | |
Lease Liabilities-current | |
$ | 109,977 | | |
$ | 116,170 | |
Lease liabilities-non current | |
| 62,396 | | |
| 84,164 | |
Total | |
$ | 172,373 | | |
$ | 200,334 | |
The weighted average remaining lease terms and
discount rates for the operating lease were as follows as of March 31, 2023:
Remaining
lease term and discount rate: | |
| | |
Weighted average
remaining lease term (years) | |
| 0.42-1.7567 | |
Weighted average discount
rate | |
| 4.75%-5.00 | % |
For the three months ended March 31, 2023 and
2022, the Company charged total amortization of right-of-use assets of $30,846 and $76,983 respectively.
The following is a schedule, by fiscal quarter,
of maturities of lease liabilities as of March 31, 2023:
Period ended March 31, 2023: | |
Amount | |
current year | |
$ | 86,655 | |
2024 | |
| 90,215 | |
Total lease payments | |
| 176,870 | |
Less: imputed interest | |
| 4,497 | |
Present value of lease liabilities | |
| 172,373 | |
10. OTHER CURRENT LIABILITIES
| |
March 31, 2023 | | |
December 31, 2022 | |
Accrued payroll and benefit | |
$ | 1,836,138 | | |
$ | 1,831,506 | |
Other tax payable | |
| 3,800,891 | | |
| 3,451,928 | |
Others | |
| 17,640 | | |
| 65,212 | |
Total | |
$ | 5,654,669 | | |
$ | 5,348,646 | |
11. CONVERTIBLE PROMISSORY NOTES
| |
March 31, 2023 | | |
December 31, 2022 | |
Convertible promissory notes – principal | |
$ | 5,298,982 | | |
$ | 4,053,982 | |
Convertible promissory notes – discount | |
| (1,244,431 | ) | |
| (325,416 | ) |
Convertible promissory notes – interest | |
| 580,905 | | |
| 479,575 | |
Convertible promissory notes, net | |
$ | 4,635,456 | | |
$ | 4,208,141 | |
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 $2,220,000, convertible into shares of the
Company’s common stock, for $2,000,000 in gross proceeds. The convertible promissory note includes an original issue discount of
$200,000 along with $20,000 for the investor’s fees, costs and other transaction expenses incurred in connection with the purchase
and sale of the note. The Company settled convertible promissory notes 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, respectively, and issued 147,824, 147,475, 292,987,
and 279,567 shares of the Company’s common stock on January 6, 2023, January 12, 2023, January 18, 2023, February 3, 2023, and
March 2, 2023, respectively for the three months ended March 31, 2023.
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 $3,320,000, convertible into shares of Common Stock, $0.001
par value per share, of the Company, for $3,000,000 in gross proceeds. By written consent dated May 10, 2022, as permitted by Section
228 of the Delaware General Corporation Law and Section 8 of Article II of our bylaws, the stockholders who have the authority to vote
a majority of the outstanding shares of Common Stock approved the following corporate actions: (i) the entry into a purchase agreement
dated as of May 6, 2022 by and between the Company and Investor, pursuant to which the Company issued the note dated as of May 6, 2022
to the investor; and (ii) the issuance of shares of Common Stock in excess of 19.99% of the currently issued and outstanding shares of
Common Stock of the Company upon the conversion of the note. The Company settled convertible promissory notes 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, and $125,000
on March 24, 2023, respectively, and issued 235,960, 234,389, 205,090, 292,987, 279,567 and 145,660 shares of the Company’s common
stock on January 19, 2023, February 6, 2023, February 8, 2023, February 15, 2023, March 15, 2023, and March 29, 2023, respectively for
the three months ended March 31, 2023.
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 $3,320,000, convertible into shares of Common Stock, $0.001
par value per share, of the Company, for $3,000,000 in gross proceeds. By written consent dated March 6, 2023, as permitted by Section
228 of the Delaware General Corporation Law and Section 8 of Article II of our bylaws, the stockholders who have the authority to vote
a majority of the outstanding shares of Common Stock approved the following corporate actions: (i) the entry into a purchase agreement,
with terms substantially the same as the agreement attached in the aforesaid purchase agreement, by and between the Company and Investor,
pursuant to which the Company issued an unsecured convertible promissory to the investor; and (ii) the issuance of shares of Common Stock
in excess of 19.99% of the currently issued and outstanding shares of Common Stock of the Company upon the conversion of the note.
The above three unsettled convertible promissory
notes have a maturity date of 12 months with an interest rate of 10% per annum. The Company retains the right to prepay the Note at any
time prior to conversion with an amount in cash equal to 125% of the principal that the Company elects to prepay at any time three months
after the issue date, subject to a maximum monthly redemption amount of $250,000, $375,000 and $375,000, respectively. On or before the
close of business on the third trading day of redemption, the Company should deliver conversion shares via “DWAC” (DTC’s
Deposit/Withdrawal at Custodian system). The Company will be required to pay the redemption amount in cash or chooses to satisfy a redemption
in registered stock or unregistered stock, such stock shall be issued at 80% of the average of the lowest “VWAP” (the volume-weighted
average price of the Common Stock on the principal market for a particular Trading Day or set of Trading Days) during the fifteen trading
days immediately preceding the redemption notice is delivered.
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 agreement, the Company shall recognize embedded beneficial conversion
features three months after commitment date of $610,000, $913,000 and $913,000 respectively. Beneficial conversion features have been
recognized into discount on convertible promissory notes and additional paid-in capital and such discount will be amortized in twelve
months until the notes will be settled. For the year ended December 31, 2022, the Company has recognized the amortization of beneficial
conversion feature $457,500, and $694,250 to profit for the convertible promissory notes on October 4, 2021 and on May 6, 2022. For
the three months ended March 31, 2023, the Company has recognized the amortization of beneficial conversion feature of $nil, $182,610
and $38,042 to profit for the above three convertible promissory notes.
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 35,000,000 shares of its common stock, at a purchase price of $1.21 per share (“January 2023 PIPE”).
The gross proceeds to the Company from the January 2023 PIPE were $42.35 million. Since Ms. Huiwen Hu is an affiliate of the Company,
the January 2023 PIPE has been approved by the Audit Committee as well as the Board of Directors of the Company.
Common stock issued pursuant to the conversion
of convertible promissory notes
The Company settled the convertible promissory notes of $125,000 on
December 30, 2022, $125,000 on January 10, 2023, $125,000 on January 18, 2023, $200,000 on January 18, 2023, $250,000 on February 2, 2023,
$200,000 on February 3, 2023, $175,000 on February 8, 2023, $250,000 on February 15, 2023, and $250,000 on March 2, 2023, respectively,
and issued 148,399, 147,824, 147,475, 235,960, 292,987, 234,389, 205,090, 292,987, and 279,567 shares of the Company’s common stock
on January 6, 2023, January 12, 2023, January 18, 2023, January 19, 2023, February 3, 2023, February 6, 2023, February 8, 2023, February
15, 2023, and March 2, 2023, respectively.
Reverse stock split of common stock
On August 8, 2022, The Company completed a five
(5) for one (1) Reverse Stock Split (the “Reverse Split”) of our issued and outstanding ordinary shares, par value $0.001
per share.
The Reverse Stock Split applied to the issued
shares of the Company on the date of the Reverse Stock Split and does not have any retroactive effect on the Company’s shares prior
to that date. However, for accounting purposes only, references to our ordinary shares in this quarterly report are stated as having been
retroactively adjusted and restated to give effect to the Reverse Split, as if the Reverse Split had occurred by the relevant earlier
date.
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 $0.001 per share, on the date of purchase notice is greater
than or equal to $1.00 and there is an effective registration statement for the resale by the investor of the purchase notice shares,
the Company has the right, but not the obligation, to present the investor with a purchase notice, directing the investor to purchase
up to certain amount shares of the Company’s Common Stock.
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 300,000 unregistered shares of Common Stock within five business days of execution
of the Restated Agreement. In addition, within thirty days of the execution of the Restated Agreement, the Company shall deliver to the
investor a purchase notice for 489,306 shares of Common Stock (the “First Purchase Notice”) at a purchase price of 80% of
the lowest daily volume-weighted average price (“VWAP”) of the Company’s Common Stock during the valuation period as
defined in the Restated Agreement (the “Purchase Price”). Within thirty days of the closing of the First Purchase Notice,
the Company shall deliver to the investor a purchase notice for 200,000 purchase notice shares (the “Second Purchase Notice”)
at the Purchase Price. Between the closing date of the Second Purchase Notice and the period ending on the earlier of (i) March 31, 2023
or (ii) the date on which the investor shall have purchased an aggregate of 2,889,306 purchase notice shares, the Company shall have the
right, but not the obligation, to direct the Investor to purchase up to 1,900,000 purchase notice shares at which (i) the first 600,000
purchase notice shares shall be at the Purchase Price and (ii) any remaining purchase notice shares shall be at a purchase price of 85%
of the lowest daily VWAP of the Company’s Common Stock during the valuation period as defined in the Restated Agreement.
According to the agreement, the company has issued
478,468 and 200,000 shares of common stock on January 20 2023 and February 1 2023, and received proceeds of $400,182 and $158,891 in
January 2023 and February 2023.
Warrants
A summary of warrants activity for the three
months ended March 31, 2023 was as follows:
| |
Number of shares | | |
Weighted average life | | |
Weighted average exercise
price | | |
Intrinsic Value | |
| |
| | |
| | |
| | |
| |
Balance of warrants outstanding as of December 31, 2022 | |
| 3,854,674 | | |
| 3.70 years | | |
$ | 7.15 | | |
| - | |
Granted | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
$ | - | | |
| - | |
Balance of warrants outstanding as of March 31, 2023 | |
| 3,854,674 | | |
| 3.45 years | | |
$ | 7.15 | | |
| - | |
As of March 31, 2023, the Company had 3,854,674
shares of warrants, among which 54,674 shares of warrants were issued to two individuals in private placements, and 3,800,000 shares
of warrants were issued in three private placements closed on September 22, 2021.
In connection with 3,800,000 shares of warrants,
the Company issued warrants to investors to purchase a total of 3,800,000 ordinary shares with a warrant term of five (5) years. The
warrants have an exercise price of $5.75 per share.
The Warrants ended on March 31, 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.
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 March 31, 2023, the principal
amount and interest expense of convertible promissory notes are $5,298,982 and $580,905. Total obligations of $5,879,887 may be dilutive
common shares in the future.
The number of warrants is excluded from the computation
as the anti-dilutive effect.
The following table sets forth the computation
of basic and diluted loss per common share for the three months ended March 31, 2023 and 2022 respectively:
| |
For the Three Months Ended
March 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Net income | |
$ | 451,277 | | |
$ | 1,593,857 | |
| |
| | | |
| | |
Weighted Average Shares Outstanding-Basic | |
| 140,045,132 | | |
| 39,688,232 | |
Weighted Average Shares Outstanding- Diluted | |
| 148,121,900 | | |
| 42,710,590 | |
Net income per share - basic and diluted | |
| | | |
| | |
Net income per share – basic | |
$ | 0.00 | | |
$ | 0.04 | |
Net income per share – diluted | |
$ | 0.00 | | |
$ | 0.04 | |
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, stipulates those domestic enterprises and
foreign-invested enterprises are subject to a uniform tax rate of 25%. Under the PRC tax law, companies are required to make quarterly
estimate payments based on 25% tax rate; companies that received preferential tax rates are also required to use a 25% tax rate for their
installment tax payments. The overpayment, however, will not be refunded and can only be used to offset future tax liabilities.
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 three months ended March 31, 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 March 31, 2023 and December 31, 2022, the Company had deferred
tax assets of $8,184,605 and $7,841,745, respectively. The Company maintains a full valuation allowance on its net deferred tax assets
as of March 31, 2023.
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 three months ended March 31, 2023 and
2022, the Company had current income tax expenses of $1,047,420 and $1,087,475, respectively, and deferred income tax of $194,515 and
$209,744 in the connection of intangible assets generated from Baiyu acquisition, respectively.
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. The second step is to measure the tax benefit
as the largest amount that is more than 50% likely to be realized upon settlement. Interest and penalties related to uncertain tax positions
are recognized and recorded as necessary in the provision for income taxes. The Company is subject to income taxes in the PRC. According
to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational
errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances,
where the underpayment of taxes is more than RMB 100,000. In the case of transfer pricing issues, the statute of limitation is ten years.
There is no statute of limitation in the case of tax evasion. There were no uncertain tax positions as of March 31, 2023 and December
31, 2022, and the Company does not believe that its unrecognized tax benefits will change over the next twelve months.
15. RELATED PARTY TRANSACTIONS AND BALANCES
1) |
Nature of relationships
with related parties |
Name |
|
Relationship
with the Company |
Shenzhen Tongdow International Trade Co., Ltd. (“TD International Trade”) |
|
Controlled by an immediate family member of Chief Executive Officer of the Company |
Beijing Tongdow E-commerce Co., Ltd. (“Beijing TD”) |
|
Wholly owned by TD E-commerce, which is controlled by an immediate family member of Chief Executive Officer of the Company |
Shanghai Tongdow Supply Chain Management Co., Ltd. (“Shanghai TD”) |
|
Controlled by an immediate family member of Chief Executive Officer of the Company |
Guangdong Tongdow Xinyi Cable New Material Co., Ltd. (“Guangdong TD”) |
|
Controlled by an immediate family member of Chief Executive Officer of the Company |
Yangzhou Lishunwu E-commerce Co., Ltd. (Formerly named: Yangzhou Tongdow E-commerce Co., Ltd.) (“Yangzhou TD”) |
|
Controlled by an immediate family member of Chief Executive Officer of the Company |
Ningbo Xinwurong Supply Chain Management Co., Ltd. (Formerly named: Tongdow (Zhejiang) Supply Chain Management Co., Ltd.) (“Zhejiang TD”)* |
|
Controlled by an immediate family member of Chief Executive Officer of the Company |
Shenzhen Meifu Capital Co., Ltd. (“Shenzhen Meifu”) |
|
Controlled by Chief Executive Officer of the Company |
Shenzhen Tiantian Haodian Technology Co., Ltd. (“TTHD”) |
|
Wholly owned by Shenzhen Meifu |
Hainan Tongdow International Trade Co., Ltd. (“Hainan TD”) |
|
Controlled by an immediate family member of Chief Executive Officer of the Company |
Yunfeihu modern logistics Co., Ltd. (“Yunfeihu Logistics”) |
|
Controlled by an immediate family member of Chief Executive Officer of the Company |
Shenzhen Tongdow Jingu Investment Holding Co., Ltd. (“Shenzhen Jingu”) |
|
Controlled by an immediate family member of Chief Executive Officer of the Company |
Tongdow E-commerce Group Co., Ltd. (“TD E-commerce”) |
|
Controlled by an immediate family member of Chief Executive Officer of the Company |
Katie Ou |
|
Shareholder of TD Holdings Inc. |
| * | Deregistered on March 24, 2023. |
2) |
Balances with related
parties |
| |
March 31,
2023 | | |
December 31,
2022 | |
| |
| | |
| |
TD E-commerce | |
$ | 39,291,587 | | |
$ | 38,767,481 | |
Total due to related party | |
$ | 39,291,587 | | |
$ | 38,767,481 | |
The amount due to related parties are non-trade
in nature, unsecured, non-interest bearing and are not expected to be repaid in the next 12 months.
16. COMMITMENTS AND CONTINGENCIES
a Non-cancellable operating leases
The following table sets forth our contractual
obligations as of March 31, 2023:
| |
Payment due by March 31 | |
| |
Total | | |
2023 | | |
2024 | | |
2025 | |
Operating lease commitments for
property management expenses under lease agreements | |
$ | 22,220 | | |
$ | 13,270 | | |
$ | 8,950 | | |
$ | - | |
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 March 31, 2023, approximately
$0.24 million was primarily deposited in financial institutions located in Mainland China, which were uninsured by the government authority.
To limit exposure to credit risk relating to deposits, the Company primarily place cash deposits with large financial institutions in
China, which management believes are of high credit quality. The Company considers the credit standing of customers when making sales
to manage the credit risk. Considering the nature of the business at current, the Company believes that the credit risk is not material
to its operations.
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.
(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.
Translation of amounts from RMB into US$ has
been made at the following exchange rates for the respective periods:
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
Balance sheet items, except for equity accounts | |
| 6.8717 | | |
| 6.9646 | |
| |
For the three months ended March 31, | |
| |
2023 | | |
2022 | |
Items in the statements of operations and comprehensive
income (loss), and statements of cash flows | |
| 6.8476 | | |
| 6.3504 | |
(4) Economic and political risks
The Company’s operations are conducted
in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political,
economic and legal environment in the PRC, and by the general state of the PRC economy.
(5) Risks related to industry
The Company sells precious products to customers
through our industrial relationship. Sales contracts are entered into with each 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 all the remaining benefits
from the precious metal products substantially before they are sold to its customers. The Company has a single performance obligation
to sell metal products to the buyers. The Company estimates the amount of variable consideration, including sales return using the expected
value method and includes variable consideration in the transaction price to the extent that it is probable that a significant reversal
will not occur. Revenue for precious metal trading under the 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 the economic environment in general
and specific to the precious metal industry and 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
| (1) | Settlement
of Convertible Promissory Note |
The Company settled convertible promissory note
of $250,000 on April 5, 2023, and issued 357,142 shares of the Company’s common stock on April 10, 2023.
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
As of March 31, 2023, the Company had two business
lines, which are the commodities trading business and supply chain management services.
Commodities trading business
The commodities 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 three months ended March 31, 2023, the
Company recorded revenue of $34,571,288 from its commodities trading business and $6,350 from its supply chain management services, respectively.
The Company sources bulk commodity products from
non-ferrous metals 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
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 three months ended March 31, 2023, the Company generated revenue
from supply chain management services of $6,350 from four third-party customers, compared with a commodity distribution services revenue
of $575,151 with twelve third-party customers for the same period in 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.
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 March 31, 2023 as Compared to Three Months Ended
March 31, 2022
| |
For the Three Months Ended March
31, | | |
Change | |
| |
2023 | | |
2022 | | |
Amount | | |
% | |
Revenues | |
| | |
| | |
| | |
| |
- Sales of commodity products –
third parties | |
$ | 34,571,288 | | |
$ | 47,583,965 | | |
$ | (13,012,677 | ) | |
| (27 | )% |
- Supply chain management
services | |
| 6,350 | | |
| 575,151 | | |
| (568,801 | ) | |
| (99 | )% |
Total Revenues | |
| 34,577,638 | | |
| 48,159,116 | | |
| (13,581,478 | ) | |
| (28 | )% |
| |
| | | |
| | | |
| | | |
| | |
Cost of revenues | |
| | | |
| | | |
| | | |
| | |
- Commodity product sales – third parties | |
| (34,653,239 | ) | |
| (47,590,576 | ) | |
| 12,937,337 | | |
| (27 | )% |
- Supply chain management
services | |
| (40 | ) | |
| (11,602 | ) | |
| 11,562 | | |
| (100 | )% |
Total operating cost | |
| (34,653,279 | ) | |
| (47,602,178 | ) | |
| 12,948,899 | | |
| (27 | )% |
| |
| | | |
| | | |
| | | |
| | |
Gross (loss)/
profit | |
| (75,641 | ) | |
| 556,938 | | |
| (632,579 | ) | |
| (114 | )% |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Selling, general, and administrative
expenses | |
| (2,743,061 | ) | |
| (2,247,707 | ) | |
| (495,354 | ) | |
| 22 | % |
Total operating expenses | |
| (2,743,061 | ) | |
| (2,247,707 | ) | |
| (495,354 | ) | |
| 22 | % |
| |
| | | |
| | | |
| | | |
| | |
Other income, net | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 4,449,000 | | |
| 4,390,341 | | |
| 58,659 | | |
| 1 | % |
Interest expenses | |
| (109,987 | ) | |
| (110,326 | ) | |
| 339 | | |
| 0 | % |
Amortization of beneficial conversion feature relating to convertible
promissory notes | |
| (220,652 | ) | |
| (213,367 | ) | |
| (7,285 | ) | |
| 3 | % |
Other income, net | |
| 4,523 | | |
| 95,709 | | |
| (91,186 | ) | |
| (95 | )% |
Total other income,
net | |
| 4,122,884 | | |
| 4,162,357 | | |
| (39,473 | ) | |
| (1 | )% |
| |
| | | |
| | | |
| | | |
| | |
Net income before income taxes | |
| 1,304,182 | | |
| 2,471,588 | | |
| (1,167,406 | ) | |
| (47 | )% |
| |
| | | |
| | | |
| | | |
| | |
Income tax expenses | |
| (852,905 | ) | |
| (877,731 | ) | |
| 24,826 | | |
| (3 | )% |
Net income | |
$ | 451,277 | | |
$ | 1,593,857 | | |
$ | (1,142,580 | ) | |
| (72 | )% |
Revenue
For the three months ended March 31, 2023, we
generate revenue from the following two sources, including (1) revenue from sales of commodity products, (2) revenue from supply chain
management services. Total revenue decreased by $13,581,478 or 28%, from $48,159,116 for the three months ended March 31, 2022 to $34,577,638
for the three months ended March 31, 2023, among which almost all of our revenue was generated from sales of commodity products for the
three months ended March 31, 2023. For the three months ended March 31, 2022, 98.8% of our revenue was generated from sales of commodity
products and 1.2% was from supply chain management services.
| (1) | Revenue
from sales of commodity products |
For the three months ended March 31, 2023, the
Company sold non-ferrous metals to fourteen third-party customers at fixed prices compared with thirteen third-party customers for the
same period in 2022, and earned revenues when the product ownership was transferred to its customers.
The Company earned revenues of $34,571,288 from
sales of commodity products for the three months ended March 31, 2023 compared with $47,583,965 for the three months ended March 31,
2022, with a decrease of $13,012,677 or 27%. 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 three months ended March 31, 2023 compared with the three months ended March 31, 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.
| (2) | Revenue
from supply chain management 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 upstream 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 distribution services.
For the three months ended March 31, 2023, the Company recorded revenue
of $6,350 from supply chain management services to third-party customers compared with $575,151 to third-party customers for the same
period in 2022. The decrease of revenue from sales of commodity products is mainly due to COVID-19, as well as less customers in the fiere
competition.
Cost of revenue
Our cost of revenue
primarily includes the cost of revenue associated with commodity product sales and the cost of revenue associated with management services
of the supply chain. Total cost of revenue decreased by $12,948,899 or 27% from $47,602,178 for
the three months ended March 31, 2022 to $34,653,279 for the three months ended March 31, 2023, due to the decrease in the cost of revenue
associated with commodity product sales.
Cost of revenue associated with commodity trading
The cost of revenue primarily consists of purchase
costs of non-ferrous metal products.
For the three months ended March 31, 2023, the
Company purchased non-ferrous metal products of $34,653,239 from eleven third-party suppliers.
For the three months ended March 31, 2022, the
Company purchased non-ferrous metal products of $47,590,576 from twelve third-party suppliers.
Selling, general, and administrative expenses
Selling, general and administrative expenses increased
from $2,247,707 for the three months ended March 31, 2022 to $2,743,061 for the three months ended March 31, 2023, representing an increase
of $495,354, or 22%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expenses,
amortizations of intangible assets and convertible notes, professional service fees and finance offering related fees. The increase was
mainly attributable to: (i) amortization of intangible assets of $2,049,732 compared with $1,029,186 for the three months ended March
31, 2022, as the company acquired a software copyright of original amount of RMB300 million in connection with the contractual arrangement
with Shenzhen Tongdow Internet Technology Co., Ltd. on October 25, 2022, which contributed $1,095,274 to selling, general, and administrative
expenses for the three months ended March 31, 2022.
Interest income
Interest income was primarily generated from
loans made to third parties and related parties. For the three months ended March 31, 2023, interest income was $4,449,000 representing
an increase of $58,659, or 1% from $4,390,341 for the three months ended March 31, 2022.There was no big change for the three months
ended March 31, 2023 between the same period in 2022.
Amortization of beneficial conversion feature
and relative fair value of warrants relating to convertible promissory notes
For the three months ended March 31, 2023, the
item represented the amortization of the beneficial conversion feature of $220,652 of the two convertible promissory notes issued on
May 6, 2022 and March 13, 2023.
For the three months ended March 31, 2022, the
item represented the amortization of the beneficial conversion feature of $213,367 of the three convertible promissory notes issued on
January 6, 2021, March 4, 2021 and October 4, 2021.
Net income
As a result of the foregoing, net income for
the three months ended March 31, 2023 was $451,277, representing a decrease of $1,142,580 from $1,593,857 for the three months ended
March 31, 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.
As reflected in the accompanying unaudited consolidated financial statements,
for the three months ended March 31, 2023, the Company reported cash inflows of $2,767,040 from operating activities. As of March 31,
2023, the Company has positive working capital of approximately $174 million.
During the three months ended March 31, 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.
The Company expects to use the proceeds from
the equity financing as working capital to expand its commodities 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.