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BAIYU Holdings, Inc. - Quarter Report: 2022 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission file number: 001-36055

 

TD Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   45-4077653
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

25th Floor, Block C, Tairan Building

No. 31 Tairan 8th Road, Futian District

Shenzhen, Guangdong, PRC

  518000
(Address of principal executive offices)   (Zip Code)

 

+86 (0755) 88898711

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.001   GLG   Nasdaq Capital Market

 

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. Yes No

 

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). Yes No

 

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
Non-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 9, 2022, 55,699,386 shares of the Company’s Common Stock, $0.001 par value per share, were issued and outstanding.

 

 

 

 

 

 

PART 1. FINANCIAL INFORMATION

 

ITEM1. FINANCIAL STATEMENTS

 

TD HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, 2022 and December 31, 2021

(Expressed in U.S. dollars, except for the number of shares)

 

    September 30,
2022
    December 31,
2021
 
ASSETS            
Current Assets            
Cash and cash equivalents   $ 2,684,644     $ 4,311,068  
Loans receivable from third parties     171,909,479       115,301,319  
Prepayments     5,294       -  
Due from related parties     301,624       11,358,373  
Other current assets     4,873,054       3,288,003  
Inventories     469,486       -  
Total current assets     180,243,581       134,258,763  
                 
Non-Current Assets                
Plant and equipment, net     3,524       2,872  
Goodwill     63,784,194       71,028,283  
Intangible assets, net     16,327,667       21,257,337  
Right-of-use assets, net     622,930       888,978  
Total non-current assets     80,738,315       93,177,470  
                 
Total Assets   $ 260,981,896     $ 227,436,233  
                 
LIABILITIES AND EQUITY                
Current Liabilities                
Accounts payable   $ 1,073,122     $ 3,337,758  
Bank borrowings     985,943       1,129,288  
Third party loans payable     445,852       476,779  
Contract liabilities     -       5,221,874  
Due to related parties     -       21,174  
Income tax payable     10,549,449       8,441,531  
Lease liabilities     295,402       310,665  
Other current liabilities     5,161,205       4,297,793  
Convertible promissory notes     4,458,881       3,562,158  
Total current liabilities     22,969,854       26,799,020  
                 
Non-Current Liabilities                
Deferred tax liabilities     3,189,289       4,178,238  
Lease liabilities     346,456       586,620  
Total non-current liabilities     3,535,745       4,764,858  
                 
Total liabilities     26,505,599       31,563,878  
                 
Commitments and Contingencies (Note 16)    
 
     
 
 
                 
Equity                

Common stock (par value $0.001 per share, 600,000,000 shares authorized; 55,403,026 and 27,634,830 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively)*

    55,403       27,635  
Additional paid-in capital     285,648,331       224,900,948  
Statutory surplus reserve     1,477,768       1,477,768  
Accumulated deficit     (37,877,553 )     (42,200,603 )
Accumulated other comprehensive (loss) income     (14,827,652 )     11,666,607  
Total Equity     234,476,297       195,872,355  
                 
Total Liabilities and Equity   $ 260,981,896     $ 227,436,233  

 

  * 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.

 

1

 

 

TD 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,
 
   2022   2021   2022   2021 
Revenues                
- Sales of commodity products – third parties  $37,847,831   $51,364,489   $138,540,090   $118,387,337 
- Sales of commodity products – related parties   
-
    1,365,823    
-
    23,292,454 
- Supply chain management services - third parties   40,724    2,043,494    1,190,976    2,515,919 
Total Revenues   37,888,555    54,773,806    139,731,066    144,195,710 
                     
Cost of revenue                    
- Commodity product sales - third parties   (38,008,016)   (51,358,653)   (138,848,770)   (118,323,668)
- Commodity product sales - related parties   
-
    (1,429,486)   
-
    (23,347,003)
- Supply chain management services - third parties   (321)   (11,913)   (6,011)   (15,555)
Total cost of revenue   (38,008,337)   (52,800,052)   (138,854,781)   (141,686,226)
                     
Gross profit   (119,782)   1,973,754    876,285    2,509,484 
                     
Operating expenses                    
Selling, general, and administrative expenses   (1,951,604)   (2,226,398)   (6,075,090)   (5,851,131)
Share-based payment for service   
-
    (141,400)   
-
    (1,836,442)
Total operating expenses   (1,951,604)   (2,367,798)   (6,075,090)   (7,687,573)
                     
Other income (expenses), net                    
Interest income   4,659,595    1,809,398    13,416,254    6,854,491 
Interest expenses   (149,308)   100,294    (388,750)   (182,954)
Amortization of beneficial conversion feature relating to issuance of convertible promissory notes   (365,125)   (619,025)   (898,783)   (619,025)
Other income (expense), net   104,961    251,014    (21,283)   (135,344)
Total other income, net   4,250,123    1,541,681    12,107,438    5,917,168 
                     
Net income before income taxes   2,178,737    1,147,637    6,908,633    739,079 
                     
Income tax expenses   (874,815)   (690,022)   (2,585,583)   (1,461,884)
                     
Net income (loss)  $1,303,922   $457,615   $4,323,050   $(722,805)
                     
Comprehensive Income (Loss)                    
Net income (loss)  $1,303,922   $457,615   $4,323,050   $(722,805)
Foreign currency translation adjustments   (13,816,878)   (605,379)   (26,494,259)   1,457,191 
Comprehensive income (loss)  $(12,512,956)  $(147,764)  $(22,171,209)  $734,386 
                     
Income (Loss) per share - basic and diluted                    
Income (loss) per share- basic  $0.02   $0.02   $0.09   $(0.04)
Income (loss) per share- diluted  $0.02   $0.02   $0.08   $(0.03)
                     
Weighted Average Shares Outstanding-Basic   55,158,053    20,418,262    45,911,817    19,481,266 
                     
Weighted Average Shares Outstanding-Diluted   61,207,271    21,724,389    51,961,035    20,787,393 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

2

 

 

TD 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
    Total  
    Shares     Amount     capital     Deficit     Reserve     income (loss)     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     24,420,000       24,420       56,895,580       -       -       -       56,920,000  
Issuance of common stocks pursuant to exercise of convertible promissory notes     3,348,196       3,348       2,938,803       -       -       -       2,942,151  
Beneficial conversion feature relating to issuance of convertible promissory notes     -       -       913,000       -       -       -       913,000  
Net income     -       -       -       4,323,050       -               4,323,050  
Foreign currency translation adjustments     -       -       -       -       -       (26,494,259 )     (26,494,259 )
Balance as of September 30, 2022     55,403,026     $ 55,403     $ 285,648,331     $ (37,877,553 )   $ 1,477,768     $ (14,827,652 )   $ 234,476,297  

 

 

 

   Common Stock   Additional
paid-in
   Accumulated   Surplus   Accumulated
other
comprehensive
   Total 
   Shares   Amount   capital   Deficit   Reserve   income (loss)   Equity 
                             
Balance as of December 31, 2020   15,826,241   $15,826   $151,470,558   $(39,255,945)  $913,292   $6,885,495   $120,029,226 
Issuance of common stocks in connection with private placements   10,000,000    10,000    62,290,000    
-
    
-
    
-
    62,300,000 
Issuance of common stocks pursuant to exercise of warrants   311,778    312    1,447,014    (1,439,826)   
-
    
-
    7,500 
Issuance of common stocks pursuant to registered direct offering   270,694    271    2,192,717    
-
    
-
    
-
    2,192,988 
Share-based payment for service   28,000    28    1,836,414    
-
    
-
    
-
    1,836,442 
Issuance of common stocks pursuant to exercise of convertible promissory notes   545,893    546    2,182,648    
-
    
-
    
-
    2,183,194 
Beneficial conversion feature relating to issuance of convertible promissory notes   -    -    1,372,250    
-
    
-
    
-
    1,372,250 
Net loss   -    
-
    
-
    (722,805)   
-
         (722,805)
Foreign currency translation adjustments   -    
-
    
-
    
-
    
-
    1,457,191    1,457,191 
Balance as of September 30, 2021*   26,982,606   $26,983   $222,791,601   $(41,418,576)  $913,292   $8,342,686   $190,655,986 

 

* 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.

 

3

 

 

TD 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
    Total  
    Shares     Amount     capital     Deficit     Reserve     income (loss)     Equity  
                                           
Balance as of June 30, 2022     54,736,018     $ 54,736     $ 285,023,998     $ (39,181,475 )   $ 1,477,768     $ (1,010,774 )   $ 246,364,253  
Issuance of common stocks pursuant to exercise of convertible promissory notes     667,008       667       624,333       -       -       -       625,000  
Net income     -       -       -       1,303,922       -       -       1,303,922  
Foreign currency translation adjustments     -       -       -       -       -       (13,816,878 )     (13,816,878 )
Balance as of September 30, 2022     55,403,026     $ 55,403     $ 285,648,331     $ (37,877,553 )   $ 1,477,768     $ (14,827,652 )   $ 234,476,297  

 

TD 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

      Total  
    Shares     Amount     capital     Deficit     Reserve     income (loss)       Equity  
                                             
Balance as of June 30, 2021     19,408,713     $ 19,409     $ 181,252,331     $ (41,876,191 )   $ 913,292     $ 8,948,065       $ 149,256,906  
Issuance of common stocks in connection with private placements     7,000,000       7,000       37,843,000       -       -       -         37,850,000  
Share-based payment for service     28,000       28       141,372       -       -       -         141,400  
Issuance of common stocks pursuant to exercise of convertible promissory notes     545,893       546       2,182,648       -       -       -         2,183,194  
Beneficial conversion feature relating to issuance of convertible promissory notes     -       -       1,372,250       -       -       -         1,372,250  
Net income     -       -       -       457,615       -       -         457,615  
Foreign currency translation adjustments     -       -       -       -       -       (605,379 )       (605,379 )
Balance as of September 30, 2021*     26,982,606     $ 26,983     $ 222,791,601     $ (41,418,576 )   $ 913,292     $ 8,342,686       $ 190,655,986  

 

* 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. 

 

4

 

  

TD HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. dollar)

 

    For the
Nine Months Ended
September 30,
 
    2022     2021  
Cash Flows from Operating Activities:            
Net income (loss)   $ 4,323,050     $ (722,805 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
Depreciation of property and equipment     4,503       331  
Amortization of right of use assets     248,475       -  
Amortization of intangible assets     2,967,735       2,905,932  
Amortization of discount on convertible promissory notes     354,333       354,000  
Monitoring fee relating to convertible promissory notes     157,276       -  
Interest expense for convertible promissory notes     341,482       300,108  
Standstill fee relating to convertible promissory notes     -       356,934  
Deferred tax liabilities     (604,813 )     (617,582 )
Share-based payment for service    
-
      1,836,442  
Amortization of beneficial conversion feature relating to issuance of convertible promissory notes     898,783       619,025  
Changes in operating assets and liabilities:                
Other current assets     74,164       1,268,574  
Inventories     (504,519 )     -  
Prepayments     (5,689 )     -  
Due from related parties     (517,471 )     (385,132 )
Due from third parties     (1,239,339 )     (1,589,463 )
Accounts payable     (2,067,808 )      
Contract liabilities     (5,039,217 )     (1,028,785 )
Due to related parties     (20,433 )     (5,497,309 )
Income tax payable     3,190,730       2,070,616  
Other current liabilities     1,202,550       607,774  
Lease liabilities     (178,203 )     -  
Due to third party loans payable     19,019       463,271  
Net Cash Provided by Operating Activities     3,604,608       941,931  
                 
Cash Flows from Investing Activities:                
Purchases of intangible assets     -       (5,100,306 )
Purchases of plant and equipment     (5,449 )     (2,603 )
Purchases of operating lease assets     (58,617 )     -  
Final payment of acquisition of a subsidiary     -       (15,532,750 )
Payment made on loans to related parties     (301,624 )     -  
Payment made on loans to third parties     (77,227,957 )     (99,030,244 )
Collection of loans from third parties     3,758,759       13,463,633  
Collection of loans from related parties     10,637,336       44,399,732  
Investments in other investing activities     (51,192 )     (410,536 )
Net Cash Used in by Investing Activities     (63,248,744 )     (62,213,074 )
                 
Cash Flows from Financing Activities:                
Repayments of borrowings to related parties     -       (1,896,122 )
Payments of borrowings to the third parties     (30,272 )     (556,397 )
Proceeds from issuance of common stock under ATM     -       2,192,989  
Proceeds from issuance of common stock under private placement transactions     56,920,000       57,877,941  
Proceeds from convertible promissory notes     3,000,000       4,500,000  
Proceeds from exercise of warrants     -       7,500  
Net Cash Provided by Financing Activities     59,889,728       62,125,911  
                 
Effect of exchange rate changes on cash and cash equivalents     (1,872,016 )     736,609  
                 
Net (decrease) increase in cash and cash equivalents     (1,626,424 )     1,591,377  
Cash at beginning of period     4,311,068       2,700,013  
Cash at end of period   $ 2,684,644     $ 4,291,390  
                 
Supplemental Cash Flow Information                
Cash paid for interest expense   $ 63,752     $ -  
Cash paid for income tax   $ 1,712     $ 75,416  
                 
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   $ 3,855,150     $ -  
Issuance of common stocks in connection with warrant cashless exercise in March 2021   $ -     $ 1,439,826  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

5

 

 

TD HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.ORGANIZATION AND BUSINESS DESCRIPTION

 

The Company conducts business through Shanghai Jianchi Supply chain Co., Ltd (“Shanghai Jianchi”), a subsidiary of the Company, which is engaged in 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. The Company incorporated Hainan Jianchi Import and Export Co., Ltd, a subsidiary of Shanghai Jianchi, Hainan Baiyu Cross-border e-commerce Limited, a subsidiary of Tongdow HK, and Yangzhou Baiyu Cross-border e-commerce Limited, a subsidiary of Yangzhou Baiyu Venture Capital Co., Ltd during the nine months ended September 30, 2022.

 

Name   Background   Ownership
HC High Summit Holding Limited (“HC High BVI”)   A BVI company   100% owned by the Company
  Incorporated on March 22, 2018  
  A holding company  
         
Tongdow Block Chain Information Technology Company Limited (“Tongdow Block Chain”)   A Hong Kong company   100% owned by HC High BVI 
  Incorporated on April 2, 2020  
  A holding company  
         
Zhong Hui Dao Ming Investment Management Limited (“ZHDM HK”)   A Hong Kong company   100% owned by HC High BVI
  Incorporated on March 28, 2007  
  A holding company  
         
Tongdow E-trading Limited (“Tongdow HK”)    A Hong Kong company   100% owned by HC High BVI
  Incorporated on November 25, 2010  
  A holding company  
         
Shanghai Jianchi Supply Chain Company Limited (“Shanghai Jianchi”)   A PRC company and deemed a wholly foreign owned enterprise (“WFOE”)   WFOE, 100% owned by Tongdow Block Chain
  Incorporated on April 2, 2020  
  Registered capital of $10 million  
  A holding company  
         
Tongdow Hainan Digital Technology Co., Ltd. (“Tondow Hainan”)   A PRC limited liability company   A wholly owned subsidiary of Shanghai Jianchi
  Incorporated on July 16, 2020  
  Registered capital of $1,417,736 (RMB10 million)  
  Engaged in commodity trading business and providing supply chain management services to customers  
         
Shenzhen Baiyu Jucheng Data Techonology Co., Ltd (“Shenzhen Baiyu Jucheng”)   A PRC limited liability company   VIE of Hao Limo Technology (Beijing) Co., Ltd. before June 25, 2020, and a wholly owned subsidiary of Shanghai Jianchi
  Incorporated on December 30, 2013  
  Registered capital of $1,417,736 (RMB10 million) with registered capital fully paid-up  
  Engaged in commodity trading business and providing supply chain management services to customers  
         
Shenzhen Qianhai Baiyu Supply Chain Co., Ltd. (“Qianhai Baiyu”)   A PRC limited liability company   A wholly owned subsidiary of Shenzhen Baiyu Jucheng
  Incorporated on August 17, 2016  
  Registered capital of $4,523,857 (RMB30 million) with registered capital of $736,506 (RMB5 million) paid-up  
  Engaged in commodity trading business and providing supply chain management services to customers  

  

 

6

 

 

The following diagram illustrates our corporate structure as of September 30, 2022.

 

 

 

 

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, 2022 and for the nine months ended September 30, 2022 and 2021 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, 2021 previously filed with the SEC on March 16, 2022.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) are necessary to present a fair statement of the Company’s unaudited condensed consolidated financial position as of September 30, 2022 and its unaudited condensed consolidated results of operations for the three months and nine months ended September 30, 2022 and 2021, and its unaudited condensed consolidated cash flows for the nine months ended September 30, 2022 and 2021, 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.

 

7

 

 

Use of estimates

 

The preparation of consolidated financial statements in conformity with U.S. 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.

 

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.

 

8

 

 

(d)Inventory

 

Inventories of the Company are bulk commodities products, such as precious metals. Inventories are stated at the lower of cost or net realizable value. Costs of inventory are determined using the first-in first-out method. Adjustments to reduce the cost of inventories are made, if required, for decreases in sales prices, obsolescence or similar reductions in the estimated net realizable value.

 

We keep inventory for our direct sales model. Our inventory control policy requires us to monitor our inventory level and to manage obsolete inventory. Risk is passed to our customers (or to delivery service providers) upon the delivery of commodities to our customers. For a substantial majority of precious metal sold through our network, the whole transaction process takes from a few hours to a few days, thus our inventory risk is limited. For a small portion of our transactions under direct sales model, we hold inventories for repeating customers with relatively stable demands of large quantity based on our transaction data. We analyze historical sales data and days in inventory to establish inventory management plans. We monitor our real-time inventory volume and adjust our inventory management plans based on factors such as fluctuations in supply and prices, seasonality, and sales of a particular product.

 

(e)Recent accounting pronouncement

 

In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) “Financial Instruments - Credit Losses” (“ASC 326”): Measurement of Credit Losses on Financial Instruments” which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2019, the FASB issued ASU 2019-10 “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)” which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for public entities which meet the definition of a smaller reporting company. The Company will adopt ASU 2016-13 effective January 1, 2023. Management is currently evaluating the effect of the adoption of ASU 2016-13 on the consolidated financial statements. The effect will largely depend on the composition and credit quality of our investment portfolio and the economic conditions at the time of adoption.

 

In January 2017, the FASB issued ASU 2017-04, “Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test. Step two of the goodwill impairment test measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with its carrying amount. As amended by ASU 2019-10, annual or interim goodwill impairment tests are performed in fiscal years beginning after December 15, 2022. We do not expect that the adoption of this guidance will have a material impact on our financial position, results of operations and cash flows.

  

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. For public business entities, the amendments in ASU 2020-06 are effective for public entities which meet the definition of a smaller reporting company and are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company will adopt ASU 2020-06 effective January 1, 2024. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.

 

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.

 

9

 

 

3.LOANS RECEIVABLE FROM THIRD PARTIES

 

   September 30,
2022
   December 31,
2021
 
Loans receivable from third parties  $171,909,479   $115,301,319 

 

As of September 30, 2022, the Company has 15 loan agreements compared with ten loan agreements on December 31, 2021. The Company provided loans aggregating $77,227,957 for the purpose of making use of idle cash and maintaining long-term customer relationship and paid back $3,758,759 during the nine months ended September 30, 2022. These loans will mature in May 2023 through September 2023, and charges interest rate of 10.95% per annum on these customers.

 

Interest income of $4,659,169 and$1,840,962 was recognized for the three months ended September 30, 2022 and 2021, respectively. Interest income of $13,414,369 and $6,860,545 was recognized for the nine months ended September 30, 2022 and 2021. As of September 30, 2022 and December 31, 2021, the Company recorded an interest receivable of $4,711,244 and $3,090,353 as reflected under “other current assets” in the unaudited condensed consolidated balance sheets.

 

As of September 30, 2022 and December 31, 2021 there was no allowance recorded as the Company considers all of the loan receivable fully collectible.

 

4.PLANT AND EQUIPMENT, NET

 

   September 30,
2022
   December 31,
2021
 
Cost:        
Office equipment  $8,300   $3,499 
Accumulated depreciation:          
Office equipment  $(4,776)  $(627)
           
Plant and equipment, net  $3,524   $2,872 

 

Depreciation expense was $4,503, and currency translation difference was $354 for the nine months ended September 30, 2022. Purchase of office equipment was $5,449 and currency translation difference was $648 for the nine months ended September 30, 2022.

 

10

 

 

5.INTANGIBLE ASSETS

 

   September 30,
2022
   December 31,
2021
 
Customer relationships  $18,510,381   $20,612,639 
Software copyright   4,648,018    5,175,902 
Total  $23,158,399   $25,788,541 
           
Less: accumulative amortization   (6,830,732)   (4,531,204)
Intangible assets, net  $16,327,667   $21,257,337 

 

The Company’s intangible assets consist of customer relationships, which are recorded in connection with acquisitions at their fair value, and software copyright which are purchased from the related party Yunfeihu. Intangible assets with estimable lives are amortized, generally on a straight-line basis, over their respective estimated useful lives of 6.2 years and 6.83 years respectively to their estimated residual values.

 

For the nine months ended September 30, 2022, the Company amortized $2,967,735 and currency translation difference was $668,207. For the nine months ended September 30, 2021, the Company amortized $2,905,932 and currency translation difference was $2,853. No impairment loss was made against the intangible assets during the nine months ended September 30, 2022.

 

The estimated amortization expense for these intangible assets in the next five years and thereafter is as follows:

 

Period ending September 30, 2022:  Amount 
Current year  $920,553 
2023   3,682,213 
2024   3,682,213 
2025   3,682,213 
2026   3,682,213 
Thereafter   678,262 
Total:  $16,327,667 

 

11

 

 

6.DERIVATIVE FINANCIAL INSTRUMENTS

 

Derivative Instruments Not Designated As Hedge Accounting Treatment

 

On April 23, 2021 and May 26, 2022, Hainan Jianchi Import and Export Co., Ltd, a subsidiary of the Company, entered into a contract with CITIC Futures Co., Ltd and Guoyuan Futures Co., Ltd to deal with futures business to hedging sales and purchase commodity products market price risks respectively. The two futures contracts are to trade non-ferrous metal products such as aluminum ingots, copper, silver, and gold. The contract is a derivative instrument for accounting purposes. The quantities of product in these agreements are offset and are priced at prevailing market prices. The contract does not qualify for hedge accounting treatment. The Company recognized other current assets on fair value $nil. The realized loss of $19,493 and unrealized gain of $nil for the nine months ended September 30, 2022 were recognized in other income in the unaudited condensed consolidated statement of operations and comprehensive income (loss). The realized gain of $109,050 and unrealized loss of $10,447 for the three months ended September 30, 2022, were recognized in other income in the unaudited condensed consolidated statement of operations and comprehensive income (loss).

 

7.GOODWILL

 

The goodwill associated with the acquisition of Qianhai Baiyu was initially recognized at the acquisition closing date in October 2020.

 

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. As of September 30, 2022 and December 31, 2021, goodwill was $63,784,194 and $71,028,283, respectively. No impairment loss or other changes were recorded, except for the influence of foreign currency translation for the three months ended September 30, 2022 and 2021.

 

8.BANK BORROWINGS

 

Bank borrowings represent the amounts due to Baosheng County Bank that are due within one year. As of September 30, 2022 and December 31, 2021, bank loans consisted of the following: 

 

   September 30,
2022
   December 31,
2021
 
Short-term bank loans:        
Loan from Baosheng County Bank  $985,943   $1,129,288 
           

 

In August 2021, Qianhai Baiyu entered into two loan agreements with Baosheng County Bank to borrow a total amount of RMB7.2 million as working capital for one year, with the maturity date of August, 2022. The two 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. The loans were fully repaid in August 2022.

 

In August 2022, Qianhai Baiyu entered into another 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.

 

12

 

 

9.LEASES

  

The Company leases three offices under non-cancelable operating leases, two leases with terms of 38 months and the remaining lease term 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:

 

   September 30,
2022
   December 31,
2021
 
         
Right-of-use lease assets, net  $622,930   $888,978 
           
Lease Liabilities-current  $295,402   $310,665 
Lease liabilities-non current   346,456    586,620 
Total  $641,858   $897,285 

 

The weighted average remaining lease terms and discount rates for the operating lease were as follows as of September 30, 2022:

 

Remaining lease term and discount rate:        
Weighted average remaining lease term (years)     1.00-2.25  
Weighted average discount rate     4.75%-5.00 %

  

For the nine months ended September 30, 2022 and 2021, the Company charged total amortization of right-of-use assets of $248,475 and $nil respectively. For the three months ended September 30, 2022 and 2021, the Company charged total amortization of right-of-use assets of $78,391 and $nil respectively.

 

The following is a schedule, by fiscal quarter, of maturities of lease liabilities as of September 30, 2022:

 

Period ending September 30, 2022:  Amount 
Current year  $79,724 
2023   308,622 
2024   288,072 
Total lease payments   676,418 
Less: imputed interest   34,560 
Present value of lease liabilities   641,858 

 

13

 

 

10.OTHER CURRENT LIABILITIES

 

   September 30,
2022
   December 31,
2021
 
Accrued payroll and benefit  $1,712,530   $1,265,106 
Other tax payable   3,153,467    2,092,869 
Others   295,208    939,818 
Total  $5,161,205   $4,297,793 

 

11.CONVERTIBLE PROMISSORY NOTES

 

   September 30,
2022
   December 31,
2021
 
Convertible promissory notes – principal  $4,822,276   $3,976,240 
Convertible promissory notes – discount   (719,250)   (739,367)
Convertible promissory notes – interest   355,855    325,285 
Convertible promissory notes, net  $4,458,881   $3,562,158 

 

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 note of $250,000 on June 23, 2022, $125,000 on July 7, 2022, $125,000 on July 18, 2022, $125,000 on July 26, 2022, $125,000 on August 4, 2022 and $125,000 on September 6, 2022, respectively, and issued 328,947, 135,693, 125,603, 125,100, 125,100, and 150,777 shares of the Company’s Common Stock on June 27, 2022, July 7, 2022, July 19, 2022, July 26, 2022, August 5, 2022, and September 12, 2022, respectively, for the nine months ended September 30, 2022.

 

On May 6, 2022, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, pursuant to which the Company issued an unsecured promissory note in the original principal amount of $3,320,000, convertible into shares of common stock, for proceeds of $3,000,000. The Company recorded a debt discount of $320,000, which is being amortized over 12 months.

 

The above two unsettled convertible promissory notes, issued on October 4, 2021 and May 6, 2022, 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 six months after the issue date, subject to maximum monthly redemption amount of $250,000 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.

 

14

 

 

For the above two unsettled convertible promissory notes, 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 $ 610,000 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 12 months until the notes will be settled. For the three months ended September 30, 2022, the Company has recognized amortization of beneficial conversion feature $136,875 and $ 228,250 to profit. For the nine months ended September 30, 2022, the Company has recognized the amortization of beneficial conversion feature $457,500, and $380,417 to profit. For the settled convertible promissory notes issued on March 4, 2021, the Company has recognized embedded beneficial conversion features $60,867 to profit for the nine months ended September 30, 2022, and $nil for the three months ended September 30, 2022.

 

12.CAPITAL TRANSACTIONS

 

Common stock issued in private placements

 

On May 27, 2022, the Company entered into that certain securities purchase agreement with Mr. Xiangjun Wang and Mr. Heung Ming (Henry) Wong, affiliates of the Company, and certain other non-affiliate purchasers who are “non-U.S. Persons” pursuant to which the Company agreed to sell an aggregate of 11,420,000 shares of Common Stock, par value $0.001 per share. The transaction was consummated on June 24, 2022 by the issuance of 11,420,000 shares of Common Stock. The Company received proceeds of $11,420,000 in June 2022.

 

Common stock issued pursuant to the conversion of convertible promissory notes

 

The Company settled convertible promissory notes of $125,000 on July 7, 2022, $125,000 on July 18, 2022, $125,000 on July 26, 2022, $125,000 on August 4, 2022 and, $125,000 on September 6, 2022, respectively, and issued 135,693, 125,603, 125,100, 125,100, and 150,777 shares of the Company’s Common Stock on July 7, 2022, July 19, 2022, July 26, 2022, August 5, 2022, and September 12, 2022, 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 Split applied to the issued shares of the Company on the date of the Reverse 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.

 

15

 

 

Warrants

 

A summary of warrants activity for the nine months ended September 30, 2022 was as follows:

 

   Number of
shares
   Weighted
average life
   Weighted
average
exercise
price
   Intrinsic
value
 
                 
Balance of warrants outstanding and exercisable as of December 31, 2021   3,854,674     4.70 years   $7.15    
-
 
Granted   
-
    
 
    
-
    
-
 
Exercised   
-
    
 
   $
-
    
-
 
Balance of warrants outstanding and exercisable as of September 30, 2022   3,854,674     3.95 years   $7.15    
-   
 

 

As of September 30, 2022, 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.

 

16

 

 

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 September 30, 2022 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.EARNINGS (LOSS) PER SHARE

 

Basic earnings (loss) 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, 2022, the principal amount and interest expense of convertible promissory notes are $4,822,276 and $355,855. Total obligations of $5,178,131 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 nine months ended September 30, 2022 and 2021 respectively:

 

   For the
Nine Months Ended
September 30,
 
   2022   2021 
         
Net income (loss)  $4,323,050   $(722,805)
           
Weighted Average Shares Outstanding-Basic   45,911,817    19,481,266 
Weighted Average Shares Outstanding-Diluted   51,961,035    20,787,393 
Net loss per share - basic and diluted          
Earnings (loss) per share- basic  $0.09   $(0.04)
Earnings (loss) per share- diluted  $0.08   $(0.03)

 

17

 

 

   For the
Three Months Ended
September 30,
 
   2022   2021 
         
Net income  $1,303,922   $457,615 
           
Weighted Average Shares Outstanding-Basic   55,158,053    20,418,262 
Weighted Average Shares Outstanding-Diluted   61,207,271    21,724,389 
Net loss per share - basic and diluted          
Earnings (loss) per share- basic  $0.02   $0.02 
Earnings (loss) per share- diluted  $0.02   $0.02 

 

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 nine months ended September 30, 2022, 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, 2022 and December 31, 2021, the Company had deferred tax assets of $7,417,013 and $4,878,864, respectively. The Company maintains a full valuation allowance on its net deferred tax assets as of September 30, 2022.

 

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, 2022 and 2021, the Company had current income tax expenses of $3,190,396 and $1,461,884, respectively, and deferred income tax benefit of $604,813 and $617,582 in the connection of intangible assets generated from the acquisition of Qianhai Baiyu, 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 of being 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 RMB100,000. 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 September 30, 2022 and December 31, 2021 and the Company does not believe that its unrecognized tax benefits will change over the next 12 months.

 

18

 

 

15.RELATED PARTY TRANSACTIONS AND BALANCES

 

1)Nature of relationships with related parties

 

Name   Relationship with the Company
Shenzhen Qianhai Baiyu Supply Chain Co., Ltd.
(“Qianhai Baiyu”)
  Controlled by Mr. Zhiping Chen, the legal representative of Huamucheng, prior to March 31, 2020
Yunfeihu International E-commerce Group Co., Ltd
(“Yunfeihu”)
  An affiliate of the Company, over which an immediate family member of Chief Executive Officer of the Company owns equity interest and plays a role of director and senior management
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 Tongdow E-commerce Group Co., Ltd., 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 Tongdow E-commerce Co., Ltd.
(“Yangzhou TD”)
  Controlled by an immediate family member of Chief Executive Officer of the Company
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
Guotao Deng   Legal representative of Huamucheng before December 31, 2019
Hainan Tongdow International Trade Co., Ltd. (“Hainan TD”)   Controlled by the same ultimate parent company
Yunfeihu modern logistics Co., Ltd (“Yunfeihu Logistics”)   Controlled by the same ultimate parent 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
Fujian Pan   Shareholder of the Company
Katie Ou   Shareholder of the Company

 

19

 

 

2)Balances with related parties

 

  - Due from related parties

 

As of September 30, 2022 and December 31, 2021, the balances with related parties were as follows:

 

   September 30,
2022
   December 31,
2021
 
         
Yunfeihu (i)  $
-
   $11,358,373 
Katie Ou (ii)   301,624    
-
 
Total due from related parties  $301,624   $11,358,373 

 

(i) The balance due from Yunfeihu represented loans provided to the related party. Both the principal and interest have been due in May 2022, with an interest rate of 10.95% per annum.
(ii) The balance due from Katie Ou represented loans provided to the related party. Both the principal and interest will be due in November 2022, with an interest rate of 6.00% per annum.
- Due to related parties

 

   September 30,
2022
   December 31,
2021
 
         
Other related parties  $
-
   $21,174 
Total due to related parties  $
       -
   $21,174 

 

20

 

 

3)Transactions with related parties

 

For the three and nine months ended September 30, 2021 and 2022, the Company generated revenues from below related party customers:

 

   For the
Three Months Ended
September 30,
   For the
Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
Revenue from sales of commodity products                
Yunfeihu  $
    -
   $1,365,823   $
    -
   $21,650,752 
Yangzhou TD   
-
    
-
    
-
    1,641,702 
Total revenues generated from related parties  $
-
   $1,365,823   $
-
   $23,292,454 

 

4)Purchases from a related party

 

For the three and nine months ended September 30, 2021 and 2022, the Company purchased commodity products from below related party vendors:

 

   For the
Three Months Ended
September 30,
   For the
Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
Purchase of commodity products                
Yunfeihu  $
   -
   $
-
   $
   -
   $1,641,313 
Zhejiang TD   
-
    
-
    
-
    7,950,545 
Hainan TD   
-
    
-
    
-
    3,689,710 
TD International Trade   
-
    
-
    
-
    1,121,345 
Yangzhou TD   
-
    1,173,364    
-
    7,974,732 
Total purchase of commodity products  $
-
   $1,173,364   $
-
   $22,377,645 

 

21

 

  

16.COMMITMENTS AND CONTINGENCIES

 

1)Commitments

 

aNon-cancellable operating leases

 

The following table sets forth our contractual obligations as of September 30, 2022:

 

   Payment due by September 30 
   Total   2023   2024   2025 
Operating lease commitments for property management expenses under lease agreement   62,140    27,618    27,618    6,904 

 

2)Contingencies

 

a2020 Court Matter with Harrison Fund

 

On April 6, 2020, the Company filed a lawsuit against Harrison Fund, LLC (“Harrison Fund”) in the United States District Court for the Northern District of California (the “District Court”) (Case No. 3:20-cv-2307). The Company had invested $1,000,000 in Harrison Fund around May 2019. However, Harrison Fund had been reluctant to disclose related investment information to the Company and it was discovered that certain information presented on Harrison Fund’s brochure appeared to be problematic. The Company demanded a return on its investment from Harrison Fund. When the Company failed to obtain a response from Harrison Fund, it filed a complaint against Harrison Fund seeking to recover the $1,000,000 investment.

 

Due to the uncertainty arising from this pending legal proceeding, a full impairment has been applied against the Company’s investment in financial products.

 

22

 

 

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, 2022, approximately $1.89 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

 

The Company’s financial information is presented in USD. The functional currency of the Company is RMB, the currency of the 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 is 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 in stockholder’s 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. 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 the value of RMB, the gains and losses resulting from the translation of financial statements of a foreign subsidiary will be significantly affected.

 

    September 30,
2022
    December 31,
2021
 
                 
Balance sheet items, except for equity accounts     7.0998       6.3757  

 

    For the
Nine Months Ended
September 30,
 
    2022     2021  
             
Items in the statements of operations, comprehensive loss and statements of cash flows     6.6068       6.4702  

 

Transactions denominated in currencies other than the functional currency are translated into prevailing functional currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange differences are included in the consolidated statements of comprehensive loss.

 

23

 

 

(4)Economic and political risks

 

The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operation may be influenced by the political, economic and legal environment in the PRC and the general state of the PRC economy. In light of the uncertain and rapidly evolving situation relating to the spread of COVID-19, we have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, our customers, and the communities in which we participate, which could negatively impact our business. To this end, we are evaluating alternative working arrangements, including requiring all employees to work remotely, and we have suspended all non-essential travel for our employees and limiting in-person work-related meetings.

 

In addition, with the extended Chinese business shutdowns that resulted from the outbreak of COVID-19, we may experience delays or the inability to service our customers on a timely basis in our commodities trading business. The disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from the interruptions in the supply of commodities, personnel absences or delivery and storage of commodities, any of which could have adverse ripple effects on our commodities trading business. If we need to close any of our facilities or a critical number of our employees become too ill to work, our ability to provide our products and services to our customers could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse business consequences due to COVID-19, or any other pandemic, demand for our products and services could also be materially adversely affected in a rapid manner. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the localities in which we or our suppliers and customers operate within China.

 

While the potential economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. While it is too early to tell whether COVID-19 will have a material effect on our business over time, we continue to monitor the situation as it unfolds. The extent to which COVID-19 affects our 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.

 

(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.

 

24

 

 

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 $125,000 on September 29, 2022 and $125,000 on November 4, 2022, respectively, and issued 151,684 and 144,676 shares of the Company’s common stock on October 3, 2022 and November 7, 2022, respectively.

 

(2) Acquisition of Shenzhen Tongdow Internet Technology Co., Ltd.

 

On October 17, 2022, Shenzhen Baiyu Jucheng, entered into a set of variable interest entity agreements with Shenzhen Tongdow Internet Technology Co., Ltd. (“Tongdow Internet Technology”) and Shanghai Zhuotaitong Industry Co., Ltd., the sole shareholder of Tongdow Internet Technology. On October 25, 2022, the Parties completed the transaction. Upon the closing of the transaction, Shenzhen Baiyu Jucheng acquired 65% equity interest of Tongdow Internet Technology at a consideration of RMB650 million and has effective control over Tongdow Internet Technology’s management and operations.

 

(3) November Private Placement

 

On November 6, 2022, the Company entered into that certain securities purchase agreement with Ms. Renmei Ouyang, Chairwomen and Chief Executive Officer 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 50,000,000 shares of its common stock, at a purchase price of $1.15 per share (“November 2022 PIPE”). The gross proceeds to the Company from the November 2022 PIPE will be $57.5 million. Since Ms. Renmei Ouyang is an affiliate of the Company, the November 2022 PIPE has been approved by the Audit Committee of the Board of Directors of the Company as well as the Board of Directors of the Company.

 

25

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

As of September 30, 2022, 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, 2022, the Company recorded revenue of $138,540,090 from commodities trading business and $1,190,976 from commodity distribution services and other related services, respectively.

 

For the three months ended September 30, 2022, the Company recorded revenue of $37,847,831 from commodities trading business and $40,724 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 Kunsteel Group, Baosteel Group, Aluminum Corporate of China Limited, Yunnan Benyuan, Yunnan Tin, and Shanghai Copper. Potential customers include large infrastructure companies such as China National Electricity, Datang Power, China Aluminum Foshan International Trade, Tooke Investment (China), CSSC International Trade Co., Ltd., Shenye Group, and Keliyuan.

  

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 nine months ended September 30, 2022, the Company earned other supply chain management services revenue of $1,190,976 with 18 third-party customers, compared with a commodity distribution services revenue of $2,515,919 with 29 third-party customers for the same period ended September 30, 2021.

 

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.

 

26

 

 

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,

 

  inflation, which is expected to cause our suppliers to raise prices that we may not be able to pass on to our customers, which could adversely impact our business, including competitive position, market share and margins;
     
  market rates of interest, any increase in which would increase the interest payable on some of our borrowings and adversely impact our cash flow;

 

  our ability to continue our growth as well as maintain profitability;

 

  preservation of our competitive position in commodities trading industry in China;

 

  our ability to implement our strategies and make timely and effective responses to competition and changes in customer preferences;

 

  recruitment, training and retaining of qualified managerial and other personnel; and

 

  the impact of strict governmental policies relating to coronavirus on our operations and the overall conditions of the markets we operate.

 

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.

 

Three Months Ended September 30, 2022 as Compared to Three Months Ended September 30, 2021

 

    For the
Three Months Ended
September 30,
    Change  
    2022     2021     Amount     %  
Revenues                        
- Sales of commodity products – third parties   $ 37,847,831     $ 51,364,489     $ (13,516,658 )     (26 )%
- Sales of commodity products – related parties     -       1,365,823       (1,365,823 )     (100 )%
- Supply chain management services – third parties     40,724       2,043,494       (2,002,770 )     (98 )%
Total Revenue     37,888,555       54,773,806       (16,885,251 )     (31 )%
                                 
Cost of revenue                                
- Commodity product sales – third parties     (38,008,016 )     (51,358,653 )     13,350,637       (26 )%
- Commodity product sales – related parties     -       (1,429,486 )     1,429,486       (100 )%
- Supply chain management services – third parties     (321 )     (11,913 )     11,592       (97 )%
Total cost of revenue     (38,008,337 )     (52,800,052 )     14,791,715       (28 )%
                                 
Gross (loss)profit     (119,782 )     1,973,754       (2,093,536 )     (106 )%
                                 
Operating expenses                                
Selling, general, and administrative expenses     (1,951,604 )     (2,226,398 )     274,794       (12 )%
Share-based payment for service     -       (141,400 )     141,400       100 %
Total operating cost and expenses     (1,951,604 )     (2,367,798 )     416,194       (18 )%
                                 
Other income (expenses), net                                
Interest income     4,659,595       1,809,398       2,850,197       158 %
Interest expenses     (149,308 )     100,294       (249,602 )     (249 )%
Amortization of beneficial conversion feature relating to issuance of convertible promissory notes     (365,125 )     (619,025 )     253,900       (41 )%
Other income (expense), net     104,961       251,014       (146,053 )     (58 )%
Total other income, net     4,250,123       1,541,681       2,708,442       176 %
                                 
Net Income Before Income Taxes     2,178,737       1,147,637       1,031,100       90 %
                                 
Income tax expenses     (874,815 )     (690,022 )     (184,793 )     27 %
                                 
Net Income   $ 1,303,922     $ 457,615     $ 846,307       185 %

 

27

 

 

Revenue

 

For the three months ended September 30, 2022, 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 $16,885,251 or 31%, from $54,773,806 for the three months ended September 30, 2021 to $37,888,555 for the three months ended September 30, 2022, 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, 2022. For the three months ended September 30, 2021, revenue from commodity trading and supply chain management accounted for 96.3% and 3.7% of our total revenue for the three months ended September 30, 2021.

 

The decrease of revenue from sales of commodity products is mainly due to COVID-19, as well as the depreciation of RMB against USD during the three months ended September 30, 2022. During the three months ended September 30, 2022, our operations in Shanghai were temporarily affected due to the sporadic outbreak of COVID-19, which resulted in a decrease in revenue for the same period. But 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 three months ended September 30, 2022 and 2021, the Company sold non-ferrous metals to 25 customers at fixed prices, and earned revenues when the product ownership was transferred to its customers. The Company earned revenues of $37,847,831 from sales of commodity products for the three months ended September 30, 2022, among which, $nil generated from the related party, compared with $52,730,312 from sales of commodity products for the same period in 2021, including $1,365,823 generated from the related party.

 

(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 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, 2022, the Company provided $40,724 commodity distribution services to third-party customers compared with $2,043,494 to the third-party customers for the same period in 2021.

 

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 three months ended September 30, 2022, the Company earned commodity distribution commission fees of $40,724 from six third-party customers and $2,043,494 from 22 third-party customers for the same period in 2021.

 

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 $14,791,715 or 28% from $52,800,052 for the three months ended September 30, 2021 to $38,008,337 for the three months ended September 30, 2022, primarily due to a decrease of $13,350,637 in cost of revenue associated with commodity product sales from the third party. The cost of revenue decreased in line with the decrease in revenue.

 

28

 

 

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, 2022, the Company purchased non-ferrous metal products of $38,008,016 from 18 third-party vendors compared with $51,358,653 from 11 third-party vendors and $1,429,486 from one related party vendor for the three months ended September 30, 2021.

 

Selling, general, and administrative expenses

 

Selling, general and administrative expenses decreased from $2,226,398 for the three months ended September 30, 2021 to $1,951,604 for the three months ended September 30, 2022, representing a decrease of $274,794 or 12%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expenses, amortizations of intangible assets and convertible promissory notes, professional service fees and finance offering related fees. Selling, general and administrative expenses for the three months ended September 30, 2022 mainly included: (1) amortization of intangible assets of $951,619, (2) amortization of discount of convertible promissory notes of $135,000, and (3) salary of $509,721 for the three months ended September 30, 2022.

 

Interest income

 

Interest income was primarily generated from loans made to third parties and related parties. For the three months ended September 30, 2022, interest income was $4,659,595, representing an increase of $2,850,197, or 158% from $1,809,398 for the three months ended September 30, 2021. The increase was due to loans made to third-party vendors for the three 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 three months ended September 30, 2022, the item represented the amortization of beneficial conversion feature of $365,125 and relating to the convertible promissory notes, and $619,025 for the three months ended September 30, 2021.

  

Net income

 

As a result of the foregoing, net income for the three months ended September 30, 2022 was $1,303,922, representing an increase of $846,307 from net income of $457,615 for the three months ended September 30, 2021.

  

29

 

 

Nine Months Ended September 30, 2022 as Compared to Nine Months Ended September 30, 2021

 

    For the Nine Months Ended
September 30,
    Change  
    2022     2021     Amount     %  
Revenues                        
- Sales of commodity products – third parties   $ 138,540,090     $ 118,387,337     $ 20,152,753       17 %
- Sales of commodity products – related parties     -       23,292,454       (23,292,454 )     (100 )%
- Supply chain management services – third parties     1,190,976       2,515,919       (1,324,943 )     (53 )%
Total Revenue     139,731,066       144,195,710       (4,464,644 )     (3 )%
                                 
Cost of revenue                                
- Commodity product sales – third parties     (138,848,770 )     (118,323,668 )     (20,525,102 )     17 %
- Commodity product sales – related parties     -       (23,347,003 )     23,347,003       (100 )%
- Supply chain management services – third parties     (6,011 )     (15,555 )     9,544       (61 )%
Total cost of revenue     (138,854,781 )     (141,686,226 )     2,831,445       (2 )%
                                 
Gross profit     876,285       2,509,484       (1,633,199 )     (65 )%
                                 
Operating expenses                                
Selling, general, and administrative expenses     (6,075,090 )     (5,851,131 )     (223,959 )     4 %
Share-based payment for service     -       (1,836,442 )     1,836,442       (100 )%
Total operating cost and expenses     (6,075,090 )     (7,687,573 )     1,612,483       (21 )%
                                 
Other income (expenses), net                                
Interest income     13,416,254       6,854,491       6,561,763       96 %
Interest expenses     (388,750 )     (182,954 )     (205,796 )     112 %
Amortization of beneficial conversion feature relating to issuance of convertible promissory notes     (898,783 )     (619,025 )     (279,758 )     45 %
Other income (expense), net     (21,283 )     (135,344 )     114,061       (84 )%
Total other expenses, net     12,107,438       5,917,168       6,190,270       105 %
                                 
Income Before Income Taxes     6,908,633       739,079       6,169,554       835 %
                                 
Income tax expenses     (2,585,583 )     (1,461,884 )     (1,123,699 )     77 %
                                 
Net Income (Loss)   $ 4,323,050     $ (722,805 )   $ 5,045,855       698 %

 

30

 

 

Revenue

 

For the nine months ended September 30, 2022, 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 $4,464,644 or 3%, from $144,195,710 for the nine months ended September 30, 2021 to $139,731,066 for the nine months ended September 30, 2022, among which revenue from commodity trading and supply chain management accounted for 99.1% and 0.9%, respectively, of our total revenue for the nine months ended September 30, 2022.

 

(1) Revenue from sales of commodity products

 

For the nine months ended September 30, 2022, the Company sold non-ferrous metals to 25 third-party customers at fixed prices, and earned revenues when the product ownership was transferred to its customers. The Company earned revenues of $138,540,090 from sales of commodity products for the nine months ended September 30, 2022 compared with $141,679,791 for the same period in 2021.

 

(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 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, 2022, the Company earned commodity distribution commission fees of $1,190,976 from third-party vendors compared with $2,515,919 from third-party vendors for the nine months ended in 2021.

  

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 $2,831,445 or 2% from $141,686,226 for the nine months ended September 30, 2021 to $138,854,781 for the nine months ended September 30, 2022, primarily due to a decrease of $2,821,901 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, 2022, the Company purchased non-ferrous metal products of $138,848,770 from 18 third-party vendors.

 

For the nine months ended September 30, 2021, the Company purchased non-ferrous metal products of $118,323,668 from 21 third-party vendors and $23,347,003 from eight related party vendors.

 

31

 

 

Selling, general, and administrative expenses

 

Selling, general and administrative expenses increased from $5,851,131 for the nine months ended September 30, 2021 to $6,075,090 for the nine months ended September 30, 2022, representing an increase of $223,959, or 4%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expenses, amortizations of intangible assets and amortization of discount on convertible promissory notes, professional service fees and finance offering related fees. Selling, general and administrative expenses mainly consisted of: (1) amortization of intangible assets of $2,967,735, (2) amortization of discount on convertible promissory notes of $354,333, and (3) salary of $1,350,081 for the nine months ended September 30, 2022.

 

Share-based payment for service

  

On March 4, 2021, the Company issued 750,000 fully-vested warrants with an exercise price of $0.01, with a five-year life, to an agent who was engaged to complete the warrant waiver and exercise agreements. The Company applied Black-Scholes model and determined the fair value of the warrants to be $1,695,042. Significant estimates and assumptions used included stock price on March 4, 2021 of $2.27 per share, risk-free interest rate of one year of 0.08%, life of five years, and volatility of 71.57% for the nine months ended September 30, 2021.

 

On July 16, 2021, the Company issued 140,000 shares of the Company’s common stock as compensation to a PR service provider for increasing the Company’s visibility in the financial news community, and recognized 141,400 Share-based payment for service to profit.

 

For the nine months ended September 30, 2022, no such expenses were incurred.

 

Interest income

 

Interest income was primarily generated from loans made to third parties and related parties. For the nine months ended September 30, 2022, interest income was $13,416,254 representing an increase of $6,561,763, or 96% from $6,854,491 for the nine months ended September 30, 2021. The increase was due to a lot of growth of loans made to third-party vendors 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, 2022, the item represented the amortization of beneficial conversion feature of $898,783 of three convertible promissory notes issued on March 4, 2021, October 4, 2021 and May 6, 2022.

 

For the nine months ended September 30, 2021, the item represented the amortization of beneficial conversion feature of $619,025 of two convertible promissory notes issued on January 6, 2021 and March 4, 2021.

 

Net income (loss)

 

As a result of the foregoing, net income for the nine months ended September 30, 2022 was $4,323,050, representing an increase of $5,045,855 from net loss of $722,805 for the nine months ended September 30, 2021.

 

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.

 

32

 

 

As reflected in the accompanying unaudited condensed consolidated financial statements, for the nine months ended September 30, 2022, the Company reported cash inflows of $3,604,608 from operating activities. As of September 30, 2022, the Company positive working capital of about $157 million.

 

During the nine months ended September 30, 2022, the Company entered into additional private placement agreements with certain private investors and issued 13,000,000 shares of common stock for $45,500,000, and issued 11,420,000 shares of common stock for $11,420,000, sold unsecured senior convertible promissory notes in the aggregate principal amount of $3,000,000.

 

The total gross proceeds from these transactions were $59.9 million. 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, 2022 and 2021, respectively:

 

    For the Nine Months Ended
September 30,
 
    2022     2021  
Net Cash Provided by Operating Activities   $ 3,604,608     $ 941,931  
Net Cash Used in Investing Activities     (63,248,744 )     (62,213,074 )
Net Cash Provided by Financing Activities     59,889,728       62,125,911  
Effect of exchange rate changes on cash and cash equivalents     (1,872,016 )     736,609  
Net (decrease)increase in cash and cash equivalents     (1,626,424 )     1,591,377  
Cash at beginning of period     4,311,068       2,700,013  
Cash at end of period   $ 2,684,644     $ 4,291,390  

 

Net Cash Provided by Operating Activities

 

During the nine months ended September 30, 2022, we had a cash inflow from operating activities of $3,604,608, an increase of $2,662,677 from a cash inflow of $941,931 for the nine months ended September 30, 2021. We incurred a net income for the nine months ended September 30, 2022 of $4,323,050, an increase of $5,045,855 from the nine months ended September 30, 2021, during which we recorded a net loss of $722,805.

 

In addition to the change in profitability, the increase in net cash used in operating activities was the result of several factors, including non-cash effects adjustments including amortization of intangible assets of $2,967,735, amortization of right-of-use lease assets of $248,475, amortization of discount on convertible promissory notes of $354,333, amortization of beneficial conversion feature of convertible promissory notes of $898,783, interest expenses for convertible promissory notes of $341,482, and monitoring fee relating to convertible promissory notes of $157,276.

 

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Net Cash Used in Investing Activities 

 

Net cash used in investing activities for the nine months ended September 30, 2022 was $63,248,744 as compared to $62,213,074 for the nine months ended September 30, 2021.

 

The cash used in investing activities for the nine months ended September 30, 2022 was mainly for the payment made on loans to third parties of $77,227,957, collection of loans from third parties of $3,758,759 and collection of loans from related parties of $10,637,336.

 

Net Cash Provided by Financing Activities

 

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.

 

Impact of COVID-19

 

Since the beginning of 2022, another wave of COVID-19 variants broke out in China, which caused surging numbers of COVID-19 cases in certain cities, such as Shenzhen, Shanghai and Beijing, where relevant local governments have taken certain lock-down and other restrictive measures to prevent the further spread of COVID-19. As a result, our operations in Shanghai at the beginning of 2022 were temporarily affected for about two weeks primarily attributable to the closure of our warehouse as local authorities in Shanghai imposed strict lock-down measures since March 2022 and have been recovered subsequently since the lock-down restrictions in Shanghai have been gradually lifted. During the three months ended September 30, 2022, our operations in Shanghai were temporarily affected due to the sporadic outbreak of COVID-19, which resulting in a decrease in revenue for the same period. To the best knowledge of our management, our business and financial conditions had not been materially adversely impacted by the resurgence of COVID-19 for the nine months ended September 30, 2022.

 

The economic effect of a prolonged pandemic is difficult to predict and could result in a material financial impact on the Company’s future reporting periods. The actual impact caused by the COVID-19 outbreak will depend on its subsequent development. We will continue to assess the impacts of COVID-19 on the business and financial performance of our Group and will closely monitor the risks and uncertainties arising thereof, and may take further actions that alter our operations, or that we determine are in the best interests of our employees and third parties with which we do business.

 

Off-balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements as of September 30, 2022.

 

Contractual Obligations

 

As of September 30, 2022, the Company had three lease arrangement with two unrelated third-party with a monthly rental fee of approximately $29,409. Two lease term were within 38 months, which will be due in December 2024. The remaining one was within 24 months, which will be due in August 2023. 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:

 

   Total   Current
year
   2023   2024 
Contractual obligations:                
Operating lease  $676,418   $79,724   $308,622   $288,072 
Total  $676,418   $79,724   $308,622   $288,072 

 

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.

 

34

 

 

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, 2022.

 

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, 2022 includes:

 

There is a lack of formal procedures for handling different types of revenue recognition.

 

Company management conducted extensive transactions with related parties without adequate control by the Audit Committee and the Board of Directors.

 

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, 2022, 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, 2022, 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.

 

35

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS 

 

None.

 

ITEM 1A. RISK FACTORS 

 

As of the date of this report, 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 16, 2022.

  

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 

 

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 an unsecured convertible promissory note on May 6, 2022 in the original principal amount of $3,320,000, convertible into shares of common stock, $0.001 par value per share, of the Company. The Company received proceeds of $3,000,000 in June 2022 after deducting the agent commission and other professional fee.

 

On May 27, 2022, the Company entered into that certain securities purchase agreement with Mr. Xiangjun Wang and Mr. Heung Ming (Henry) Wong, affiliates of the Company, and certain other non-affiliate purchasers who are “non-U.S. Persons” pursuant to which the Company agreed to sell an aggregate of 11,420,000 shares of Common Stock, par value $0.001 per share. The transaction was consummated on June 24, 2022 by the issuance of 11,420,000 shares of Common Stock. The Company received proceeds of $11,420,000 in June 2022.

 

The Company settled convertible promissory notes of $125,000 on July 7, 2022, $125,000 on July 18, 2022, $125,000 on July 26, 2022, $125,000 on August 4, 2022 and $125,000 on September 6, 2022, respectively, and issued 135,693, 125,603, 125,100, 125,100, and 150,777 shares of the Company’s common stock on July 7, 2022, July 19, 2022, July 26, 2022, August 5, 2022, and September 12, 2022, respectively.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES 

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES 

 

Not applicable.

 

ITEM 5. OTHER INFORMATION 

 

None. 

 

36

 

 

ITEM 6. EXHIBITS 

 

Exhibit No.   Description
     
3.1*   Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of the draft registration statement on Form DRS filed on February 14, 2013)
3.2*   Bylaws of Registrant (incorporated by reference to Exhibit 3.2 of the draft registration statement on Form DRS filed on February 14, 2013)
3.3*   Articles of Association of Wujiang Luxiang Rural Microcredit Co. Ltd. (incorporated by reference to Exhibit 3.3 of the registration statement on Form S-1/A filed on June 27, 2013)
3.4*   Certificate of Approval of Wujiang Luxiang Rural Microcredit Co. Ltd. (incorporated by reference to Exhibit 3.4 of the registration statement on Form S-1 filed on June 7, 2013)
3.5*   Certificate of Amendment of the Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.5 of the registration statement on Form S-1/A filed on July 16, 2013)
3.6*   Certificate of Amendment to the Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on January 16, 2019)
3.7*   Certificate of Amendment to the Certificate of Incorporation of Registrant, incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on June 7, 2019
3.8*   Certificate of Amendment to the Certificate of Incorporation of Registrant, incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on March 12, 2020
3.9*   Certificate of Amendment to Certificate of Incorporation of Registrant, incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on April 21, 2021
3.10*   Certificate of Amendment to Certificate of Incorporation of Registrant, incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on August 17, 2022
10.1*   Securities Purchase Agreement between the Company and Streeterville Capital, LLC, dated May 6, 2022, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on May 10, 2022
10.2*   Convertible Promissory Note dated May 6, 2022, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed on May 10, 2022
10.3*   Form of Common Stock Securities Purchase Agreement, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on May 31, 2022
10.4*   Exclusive Business Cooperation Agreement, dated October 17, 2022, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on October 18, 2022
10.5*   Share Pledge Agreement, dated October 17, 2022, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K filed on October 18, 2022
10.6*   Exclusive Option Agreement, dated October 17, 2022, incorporated herein by reference to Exhibit 10.3 of the Current Report on Form 8-K filed on October 18, 2022
10.7*   Power of Attorney, dated October 17, 2022, incorporated herein by reference to Exhibit 10.4 of the Current Report on Form 8-K filed on October 18, 2022
10.8*   Timely Reporting Agreement, dated October 17, 2022, incorporated herein by reference to Exhibit 10.5 of the Current Report on Form 8-K filed on October 18, 2022
10.9*   Form of Common Stock Securities Purchase Agreement, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on November 7, 2022
31.1**   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2**   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1***   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2***   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   Inline XBRL Instance Document.
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

*Previously filed

 

**Filed herewith

 

*** Furnished herewith

 

37

 

 

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.

 

  TD HOLDINGS, INC.
     
Date: November 10, 2022   By: /s/ Renmei Ouyang
  Name: Renmei Ouyang
  Title: Chief Executive Officer
(Principal Executive Officer)
     
  By: /s/ Tianshi (Stanley) Yang
  Name:  Tianshi (Stanley) Yang
  Title: Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 

38