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 June 30, 2021March 31, 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 August 16, 2021, 99,484,047May 13, 2022, 213,001,894 shares of the Company’s Common Stock, $0.001 par value per share, were issued and outstanding.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 6,896,515 | $ | 2,700,013 | ||||
| Accounts receivable, net | 2,523 | - | ||||||
| Loans receivable from third parties | 59,504,874 | 18,432,691 | ||||||
| Prepayments | 5,115,092 | - | ||||||
| Due from related parties | 20,366,043 | 55,839,045 | ||||||
| Inventory | 883,961 | - | ||||||
| Other current assets | 728,738 | 1,310,562 | ||||||
| Total current assets | 93,497,746 | 78,282,311 | ||||||
| Property and equipment, net | 2,205 | - | ||||||
| Goodwill | 70,088,377 | 69,322,325 | ||||||
| Intangible assets | 22,999,116 | 19,573,846 | ||||||
| Total noncurrent assets | 93,089,698 | 88,896,171 | ||||||
| Total Assets | $ | 186,587,444 | $ | 167,178,482 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 2,301,057 | $ | - | ||||
| Advances from customers | 10,995,818 | 9,214,369 | ||||||
| Third party loan payables | 1,996,533 | - | ||||||
| Due to related parties | 1,349,180 | 7,346,021 | ||||||
| Bank borrowings | 1,300,068 | 1,653,247 | ||||||
| Income tax payable | 6,703,087 | 5,460,631 | ||||||
| Convertible notes | 5,219,360 | - | ||||||
| Acquisition payable | - | 15,384,380 | ||||||
| Other current liabilities | 2,930,193 | 3,197,147 | ||||||
| Total Current Liabilities | 32,795,296 | 42,255,795 | ||||||
| Deferred tax liabilities | 4,535,242 | 4,893,461 | ||||||
| Total Non-current Liabilities | 4,535,242 | 4,893,461 | ||||||
| Total Liabilities | 37,330,538 | 47,149,256 | ||||||
| Commitments and Contingencies (Note 12) | ||||||||
| Equity | ||||||||
| Common stock (par value $0.001 per share, 100,000,000 shares authorized; 97,043,566 and 79,131,207 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively) | 97,044 | 79,131 | ||||||
| Additional paid-in capital | 181,174,696 | 151,407,253 | ||||||
| Statutory reserve | 913,292 | 913,292 | ||||||
| Accumulated deficit | (41,876,191 | ) | (39,255,945 | ) | ||||
| Accumulated other comprehensive loss | 8,948,065 | 6,885,495 | ||||||
| Total Equity | 149,256,906 | 120,029,226 | ||||||
| Total Liabilities and Equity | $ | 186,587,444 | $ | 167,178,482 | ||||
The accompanying notes are an integral partAs of the unaudited condensed consolidated financial statements.
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ANDMarch 31, 2022 and December 31, 2021
COMPREHENSIVE INCOME (LOSS)
(Expressed in U.S. dollars, except for the number of shares)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| - Sales of commodity products – related parties | $ | 1,523,616 | $ | 1,563,669 | $ | 21,926,631 | $ | 2,617,301 | ||||||||
| - Sales of commodity products – third parties | 57,989,381 | - | 67,022,848 | |||||||||||||
| - Supply chain management services – related parties | 26,949 | 70,596 | ||||||||||||||
| - Supply chain management services – third parties | 326,650 | 351,793 | 472,425 | 460,630 | ||||||||||||
| Total Revenue | 59,839,647 | 1,942,411 | 89,421,904 | 3,148,527 | ||||||||||||
| Cost of revenue | ||||||||||||||||
| - Commodity product sales-related parties | (1,531,336 | ) | (1,369,669 | ) | (21,917,517 | ) | (1,256,218 | ) | ||||||||
| - Commodity product sales-third parties | (57,932,603 | ) | (200,679 | ) | (66,965,015 | ) | (1,369,669 | ) | ||||||||
| - Supply chain management services – related parties | - | - | - | |||||||||||||
| - Supply chain management services – third parties | (2,592 | ) | (7,633 | ) | (3,642 | ) | (7,954 | ) | ||||||||
| Total cost of revenue | (59,466,531 | ) | (1,577,981 | ) | (88,886,174 | ) | (2,633,841 | ) | ||||||||
| Gross profit | 373,116 | 364,430 | 535,730 | 514,686 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general, and administrative expenses | (2,054,354 | ) | (439,128 | ) | (3,624,733 | ) | (740,825 | ) | ||||||||
| Total operating cost and expenses | (2,054,354 | ) | (439,128 | ) | (3,624,733 | ) | (740,825 | ) | ||||||||
| Other income (expenses), net | ||||||||||||||||
| Interest income | 2,946,236 | 1,804,743 | 5,045,093 | 1,884,923 | ||||||||||||
| Interest expenses | (155,825 | ) | (31,610 | ) | (283,248 | ) | (54,480 | ) | ||||||||
| Share-based payment for service | - | - | (1,695,042 | ) | - | |||||||||||
| Amortization of beneficial conversion feature relating to issuance of convertible notes | - | (3,400,000 | ) | - | (3,400,000 | ) | ||||||||||
| Amortization of relative fair value of warrants relating to issuance of convertible notes | - | (3,060,000 | ) | - | (3,060,000 | ) | ||||||||||
| Other income (expense), net | (379,924 | ) | - | (386,358 | ) | - | ||||||||||
| Total other income (expenses), net | 2,410,487 | (4,686,867 | ) | 2,680,445 | (4,629,557 | ) | ||||||||||
| Net income (loss) from continuing operations before income taxes | 729,249 | (4,761,565 | ) | (408,558 | ) | (4,855,696 | ) | |||||||||
| Income tax expenses | (371,393 | ) | (408,829 | ) | (771,862 | ) | (408,829 | ) | ||||||||
| Net income (loss) from continued operations, net of tax | 357,856 | (5,170,394 | ) | (1,180,420 | ) | (5,264,525 | ) | |||||||||
| Net loss from discontinued operations, net of tax | - | (292,091 | ) | - | (552,445 | ) | ||||||||||
| Net income (loss) | (357,856 | ) | (5,462,485 | ) | (1,180,420 | ) | (5,816,970 | ) | ||||||||
| Less: Net loss attributable to non-controlling interests | - | 2,804 | - | 7,073 | ||||||||||||
| Net income (loss) attributable to TD Holdings, Inc.’s Stockholders | $ | 357,856 | (5,459,681 | ) | (1,180,420 | ) | (5,809,897 | ) | ||||||||
| Comprehensive Income (Loss) | ||||||||||||||||
| Net income (loss) | $ | 357,856 | (5,462,485 | ) | (1,180,420 | ) | (5,816,970 | ) | ||||||||
| Foreign currency translation adjustment | 2,706,148 | (85,670 | ) | 2,062,570 | (87,972 | ) | ||||||||||
| Comprehensive income (loss) | 3,064,004 | (5,548,155 | ) | 882,150 | (5,904,942 | ) | ||||||||||
| Less: Total comprehensive income - attributable to non-controlling interests | - | 2,804 | - | 7,073 | ||||||||||||
| Comprehensive income (loss) attributable to TD Holdings, Inc. | $ | 3,064,064 | (5,545,351 | ) | 882,150 | (5,897,869 | ) | |||||||||
| Income (Loss) per share - basic and diluted | ||||||||||||||||
| Continuing Operation- Income (loss) per share – Basic and diluted | (0.00 | ) | (0.11 | ) | (0.01 | ) | (0.17 | ) | ||||||||
| Continuing Operation- Income (loss) per share – Diluted | (0.00 | ) | - | - | - | |||||||||||
| Discontinuing Operation-Net loss per share –Basic and diluted | $ | - | (0.01 | ) | - | (0.02 | ) | |||||||||
| Weighted Average Shares Outstanding-Basic | 96,821,039 | 47,486,210 | 95,025,014 | 30,579,616 | ||||||||||||
| Weighted Average Shares Outstanding- Diluted | 102,312,155 | - | - | - | ||||||||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 3,574,342 | $ | 4,311,068 | ||||
| Loans receivable from third parties | 175,999,505 | 115,301,319 | ||||||
| Accounts receivable | 55,004 | - | ||||||
| Prepayments | 1,892,498 | - | ||||||
| Due from related parties | - | 11,358,373 | ||||||
| Other current assets | 4,950,447 | 3,288,003 | ||||||
| Inventories | 133,857 | - | ||||||
| Total current assets | 186,605,653 | 134,258,763 | ||||||
| Non-Current Assets | ||||||||
| Plant and equipment, net | 4,704 | 2,872 | ||||||
| Goodwill | 71,335,973 | 71,028,283 | ||||||
| Intangible assets, net | 20,319,879 | 21,257,337 | ||||||
| Right-of-use assets, net | 864,671 | 888,978 | ||||||
| Total non-current assets | 92,525,227 | 93,177,470 | ||||||
| Total Assets | $ | 279,130,880 | $ | 227,436,233 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 3,236,098 | $ | 3,337,758 | ||||
| Bank borrowings | 1,134,180 | 1,129,288 | ||||||
| Third party loans payable | 485,370 | 476,779 | ||||||
| Contract liabilities | 7,145,609 | 5,221,874 | ||||||
| Due to related parties | - | 21,174 | ||||||
| Income tax payable | 9,564,169 | 8,441,531 | ||||||
| Lease liabilities | 337,372 | 310,665 | ||||||
| Other current liabilities | 4,809,745 | 4,297,793 | ||||||
| Convertible promissory notes | 2,244,675 | 3,562,158 | ||||||
| Total current liabilities | 28,957,218 | 26,799,020 | ||||||
| Non-Current Liabilities | ||||||||
| Deferred tax liabilities | 3,986,521 | 4,178,238 | ||||||
| Lease liabilities | 534,913 | 586,620 | ||||||
| Total non-current liabilities | 4,521,434 | 4,764,858 | ||||||
| Total liabilities | 33,478,652 | 31,563,878 | ||||||
| Commitments and Contingencies (Note 16) | ||||||||
| Equity | ||||||||
| Common stock (par value $0.001 per share, 600,000,000 shares authorized; 213,001,894 and 138,174,150 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively) | 213,002 | 138,174 | ||||||
| Additional paid-in capital | 272,020,401 | 224,790,409 | ||||||
| Statutory surplus reserve | 1,477,768 | 1,477,768 | ||||||
| Accumulated deficit | (40,606,746 | ) | (42,200,603 | ) | ||||
| Accumulated other comprehensive income | 12,547,803 | 11,666,607 | ||||||
| Total Equity | 245,652,228 | 195,872,355 | ||||||
| Total Liabilities and Equity | $ | 279,130,880 | $ | 227,436,233 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2022 and 2021
(Expressed in U.S. dollars, except for the number of shares)
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | ||||||||
| - Sales of commodity products – third parties | $ | 47,583,965 | $ | 9,033,467 | ||||
| - Sales of commodity products – related parties | - | 20,403,015 | ||||||
| - Supply chain management services – third parties | 575,151 | 145,775 | ||||||
| Total revenue | 48,159,116 | 29,582,257 | ||||||
| Cost of revenues | ||||||||
| - Commodity product sales-third parties | (47,590,576 | ) | (9,032,412 | ) | ||||
| - Commodity product sales-related parties | - | (20,386,181 | ) | |||||
| - Supply chain management services-third parties | (11,602 | ) | (1,050 | ) | ||||
| Total operating costs | (47,602,178 | ) | (29,419,643 | ) | ||||
| Gross profit | 556,938 | 162,614 | ||||||
| Operating expenses | ||||||||
| Selling, general, and administrative expenses | (2,247,707 | ) | (1,570,379 | ) | ||||
| Share-based payment for service | - | (1,695,042 | ) | |||||
| Total operating expenses | (2,247,707 | ) | (3,265,421 | ) | ||||
| Net Operating Loss | (1,690,769 | ) | (3,102,807 | ) | ||||
| Other income(expenses), net | ||||||||
| Interest income | 4,390,341 | 2,098,857 | ||||||
| Interest expenses | (110,326 | ) | (127,423 | ) | ||||
| Amortization of beneficial conversion feature relating to issuance of convertible promissory notes | (213,367 | ) | - | |||||
| Other income (expenses), net | 95,709 | (6,434 | ) | |||||
| Total other income, net | 4,162,357 | 1,965,000 | ||||||
| Net income (loss) before income taxes | 2,471,588 | (1,137,807 | ) | |||||
| Income tax expenses | (877,731 | ) | (400,469 | ) | ||||
| Net income (loss) | 1,593,857 | (1,538,276 | ) | |||||
| Comprehensive Income (loss) | ||||||||
| Net income (loss) | 1,593,857 | (1,538,276 | ) | |||||
| Foreign currency translation adjustments | 881,196 | (643,578 | ) | |||||
| Comprehensive Income (loss) | $ | 2,475,053 | $ | (2,181,854 | ) | |||
| Earnings (loss) per share - basic and diluted | ||||||||
| Continuing Operation- Earnings (loss) per share – basic | $ | 0.01 | $ | (0.02 | ) | |||
| Continuing Operation- Earnings (loss) per share –diluted | $ | 0.01 | $ | (0.02 | ) | |||
| Weighted Average Shares Outstanding-Basic | 198,441,160 | 93,209,034 | ||||||
| Weighted Average Shares Outstanding- Diluted | 213,552,950 | 95,764,295 | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in U.S. dollars, except forFor the number of shares)
| Subscription | Accumulated | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional paid-in | Accumulated | advanced from a |
Surplus | other comprehensive | Non-controlling | Total (Deficit) | |||||||||||||||||||||||||||||
| Shares | Amount | capital | Deficit | shareholder | Reserve | loss | interests | Equity | ||||||||||||||||||||||||||||
| Balance as at December 31, 2019 | 11,585,111 | $ | 11,585 | $ | 38,523,170 | $ | (32,391,040 | ) | $ | - | $ | (334,281 | ) | $ | (8,572 | ) | $ | 5,800,862 | ||||||||||||||||||
| Issuance of common stocks in connection with private placements | 17,000,000 | 17,000 | 15,083,000 | - | (13,500,000 | ) | - | - | 1,600,000 | |||||||||||||||||||||||||||
| Issuance of common stocks in connection with exercise of convertible notes | 20,000,000 | 20,000 | 29,980,000 | - | - | - | - | 30,000,000 | ||||||||||||||||||||||||||||
| Beneficial conversion feature relating to issuance of convertible notes | - | - | 3,400,000 | - | - | - | - | 3,400,000 | ||||||||||||||||||||||||||||
| Relative fair value of warrants relating to issuance of convertible notes | 3,060,000 | 3,060,000 | ||||||||||||||||||||||||||||||||||
| Issuance of common stocks in connection with exercise of warrants | 20,000,000 | 20,000 | 35,980,000 | - | - | - | - | 36,000,000 | ||||||||||||||||||||||||||||
| Collection of subscription fee | - | - | - | - | 13,500,000 | - | - | 13,500,000 | ||||||||||||||||||||||||||||
| Net loss | - | - | - | (5,809,897 | ) | - | - | (7,073 | ) | (5,816,970 | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | - | (87,972 | ) | - | (87,972 | ) | |||||||||||||||||||||||||
| Balance as at June 30, 2020 | 68,585,111 | $ | 68,585 | $ | 126,026,170 | $ | (38,200,937 | ) | $ | - | $ | - | $ | (422,253 | ) | $ | (15,645 | ) | $ | 87,455,920 | ||||||||||||||||
| Balance as at December 31, 2020 | 79,131,207 | $ | 79,131 | $ | 151,407,253 | $ | (39,255,945 | ) | $ | - | 913,292 | $ | 6,885,495 | $ | - | $ | 120,029,226 | |||||||||||||||||||
| Issuance of common stocks in connection with private placements | 15,000,000 | 15,000 | 24,435,000 | - | - | - | - | - | 24,450,000 | |||||||||||||||||||||||||||
| Issuance of common stocks pursuant to registered direct offering | 1,353,468 | 1,354 | 2,191,634 | - | - | - | - | - | 2,192,988 | |||||||||||||||||||||||||||
| Issuance of common stocks pursuant to exercise of warrants | 1,558,891 | 1,559 | 1,445,767 | (1,439,826 | ) | - | - | - | - | 7,500 | ||||||||||||||||||||||||||
Share-based payment for service | 1,695,042 | 1,695,042 | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | (1,180,420 | ) | - | - | (1,180,420 | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | - | 2,062,570 | - | 2,062,570 | |||||||||||||||||||||||||||
| Balance as at June 30, 2021 | 97,043,566 | $ | 97,044 | $ | 181,174,696 | $ | (41,876,191 | ) | $ | - | $ | 913,292 | $ | 8,948,065 | $ | - | $ | 149,256,906 | ||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYThree Months Ended March 31, 2022 and 2021
(Expressed in U.S. dollars, except for the number of shares)
| Common Stock | Additional paid-in | Accumulated | Subscription advanced from a | Surplus | Accumulated other comprehensive | Non-controlling | Total (Deficit) | |||||||||||||||||||||||||||||
| Shares | Amount | capital | Deficit | shareholder | Reserve | income (loss) | interests | Equity | ||||||||||||||||||||||||||||
| Balance as at March 31, 2020 | 28,585,111 | $ | 28,585 | $ | 53,606,170 | $ | (32,741,256 | ) | $ | (13,500,000 | ) | - | $ | (336,583 | ) | $ | (12,841 | ) | $ | 7,044,075 | ||||||||||||||||
| Issuance of common stocks in connection with exercise of convertible notes | 20,000,000 | 20,000 | 29,980,000 | - | - | - | - | - | 30,000,000 | |||||||||||||||||||||||||||
| Beneficial conversion feature relating to issuance of convertible notes | - | - | 3,400,000 | - | - | - | - | - | 3,400,000 | |||||||||||||||||||||||||||
| Relative fair value of warrants relating to issuance of convertible notes | 3,060,000 | - | - | 3,060,000 | ||||||||||||||||||||||||||||||||
| Issuance of common stocks in connection with exercise of warrants | 20,000,000 | 20,000 | 35,980,000 | - | - | - | - | - | 36,000,000 | |||||||||||||||||||||||||||
| Collection of subscription fee | - | - | - | - | 13,500,000 | - | - | - | 13,500,000 | |||||||||||||||||||||||||||
| Net loss | - | - | - | (5,459,681 | ) | - | - | - | (2,804 | ) | (5,462,485 | ) | ||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | - | (85,669 | ) | - | (85,669 | ) | |||||||||||||||||||||||||
| Balance as at June 30, 2020 | 68,585,111 | $ | 68,585 | $ | 126,026,170 | $ | (38,200,937 | ) | $ | - | $ | - | (422,253 | ) | $ | (15,645 | ) | $ | 87,455,920 | |||||||||||||||||
Balance as at March 31, 2021 (Restated, See Note 2) | 96,293,566 | 96,294 | 181,167,946 | (42,234,047 | ) | - | 913,292 | 6,241,917 | - | 146,185,402 | ||||||||||||||||||||||||||
| Issuance of common stocks in connection with exercise of warrants | 750,000 | 750 | 6,750 | - | - | - | - | 7,500 | ||||||||||||||||||||||||||||
| Net Income | 357,856 | - | - | - | - | 357,856 | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | 2,706,148 | - | 2,706,148 | |||||||||||||||||||||||||||||||
| Balance as at June 30, 2021 | 97,043,566 | $ | 97,044 | $ | 181,174,696 | $ | (41,876,191 | ) | $ | - | 913,292 | $ | 8,948,065 | $ | - | $ | 149,256,906 | |||||||||||||||||||
| 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 | 79,131,207 | $ | 79,131 | $ | 151,407,253 | $ | (39,255,945 | ) | 913,292 | $ | 6,885,495 | $ | 120,029,226 | |||||||||||||||
| Issuance of common stocks in connection with private placements | 15,000,000 | 15,000 | 24,435,000 | - | - | - | 24,450,000 | |||||||||||||||||||||
| Issuance of common stocks pursuant to registered direct offering | 1,353,468 | 1,354 | 2,191,634 | - | - | - | 2,192,988 | |||||||||||||||||||||
| Issuance of common stocks pursuant to exercise of warrants | 808,891 | 809 | 1,439,017 | (1,439,826 | ) | - | - | - | ||||||||||||||||||||
| Net loss | - | - | - | (1,538,276 | ) | - | - | (1,538,276 | ) | |||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | (643,578 | ) | (643,578 | ) | |||||||||||||||||||
| Balance as of March 31, 2021 | 96,293,566 | $ | 96,294 | $ | 179,472,904 | $ | (42,234,047 | ) | 913,292 | $ | 6,241,917 | $ | 144,490,360 | |||||||||||||||
| Balance as of December 31, 2021 | 138,174,150 | $ | 138,174 | $ | 224,790,409 | $ | (42,200,603 | ) | 1,477,768 | $ | 11,666,607 | $ | 195,872,355 | |||||||||||||||
| Issuance of common stocks in connection with private placements | 65,000,000 | 65,000 | 45,435,000 | - | - | - | 45,500,000 | |||||||||||||||||||||
| Issuance of common stocks pursuant to exercise of convertible promissory notes | 9,827,744 | 9,828 | 1,794,992 | - | - | - | 1,804,820 | |||||||||||||||||||||
| Net income | - | - | - | 1,593,857 | - | - | 1,593,857 | |||||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | - | 881,196 | 881,196 | |||||||||||||||||||||
| Balance as of March 31, 2022 | 213,001,894 | $ | 213,002 | $ | 272,020,401 | $ | (40,606,746 | ) | 1,477,768 | $ | 12,547,803 | $ | 245,652,228 | |||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statementsstatements.
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2022 and 2021
(Expressed in U.S. dollar)
| For the Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (1,180,420 | ) | (5,816,970 | ) | |||
| Less: Net income (loss) from discontinued operations | - | (552,445 | ) | |||||
| Net income (loss) from continuing operations | - | (5,264,525 | ) | |||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Amortization of intangible assets | 1,895,871 | - | ||||||
| Depreciation of fixed assets | 130 | - | ||||||
| Amortization of discount on convertible notes | 163,333 | - | ||||||
| Amortization of right of use assets | - | 146,890 | ||||||
| Amortization of beneficial conversion feature relating to issuance of convertible notes | - | 3,400,000 | ||||||
| Amortization of relative fair value of warrants relating to issuance of convertible notes | - | 3,060,000 | ||||||
| Share-based payment for service | 1,695,042 | - | ||||||
| Standstill fee relating to convertible notes | 356,934 | - | ||||||
| Interest expense for convertible notes | 199,093 | - | ||||||
| Deferred tax liabilities | (411,736 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Other current assets | 601,683 | (138,596 | ) | |||||
| Account receivables | (2,520 | ) | (1,927,299 | ) | ||||
| Inventory | (882,764 | ) | - | |||||
| Prepayments | (5,108,162 | ) | (2,843,373 | ) | ||||
| Advances from customers | 1,677,349 | 63,976 | ||||||
| Accounts payable | 2,297,940 | - | ||||||
| Due to related parties | (5,518,273 | ) | (300,549 | ) | ||||
| Due from related parties | (457,032 | ) | - | |||||
| Income tax payable | 1,175,327 | 408,829 | ||||||
| Other current liabilities | (297,177 | ) | 820,815 | |||||
| Lease liabilities | - | (166,242 | ) | |||||
| Net cash provided by (used in) operating activities from continuing operations | (3,789,382 | ) | (2,740,074 | ) | ||||
| Net cash provided by operating activities from discontinued operations | - | 19,213 | ||||||
| Net cash provided by (used in) operating activities | (3,789,382 | ) | (2,720,861 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of intangible assets | (5,100,490 | ) | - | |||||
| Purchases of fixed assets | (2,332 | ) | - | |||||
| Final payment of acquisition of a subsidiary | (15,533,312 | ) | - | |||||
| Payment made on loan to related parties | (7,174,955 | ) | - | |||||
| Payment made on loans to third parties | (45,057,871 | ) | (78,559,027 | ) | ||||
| Collection of loans from related parties | 43,687,593 | - | ||||||
| Collection of loans from third parties | 13,370,395 | - | ||||||
| Net cash used in investing activities from continuing operations | (15,810,972 | ) | (78,559,027 | ) | ||||
| Net cash used in investing activities from discontinued operations | - | (300,711 | ) | |||||
| Net cash used in investing activities | (15,810,972 | ) | (78,859,738 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from issuance of common stock under ATM transaction | 2,192,989 | - | ||||||
| Proceeds from issuance of common stock under private placement transactions | 24,450,000 | 13,500,000 | ||||||
| Proceeds from exercise of warrants | 7,500 | 36,000,000 | ||||||
| Proceeds from issuance of convertible promissory notes | 4,500,000 | 30,000,000 | ||||||
| Proceeds from borrowings from related parties | 1,121,770 | |||||||
| Proceeds from borrowings from third parties | 1,993,828 | - | ||||||
| Repayments made on loans to related parties | (550,930 | ) | - | |||||
| Payments made on loans to third parties | (9,496,586 | ) | - | |||||
| Net cash provided by financing activities from continuing operations | 23,096,801 | 80,621,770 | ||||||
| Net cash used in financing activities from discontinuing operations | - | (381,554 | ) | |||||
| Net cash provided by financing activities | 23,096,801 | 80,240,216 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 700,055 | 381,294 | ||||||
| Net increase/(decrease)in cash and cash equivalents | 4,196,502 | (959,089 | ) | |||||
| Cash at beginning of period | 2,700,013 | 2,446,683 | ||||||
| Cash at end of period | $ | 6,896,515 | 1,487,594 | |||||
| Less: Cash from discontinued operations | - | 84 | ||||||
| Cash from continuing operations | 6,896,515 | 1,487,510 | ||||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest expense | - | - | ||||||
| Cash paid for income tax | $ | 75,416 | $ | - | ||||
| Supplemental disclosure of Non-cash investing and financing activities | ||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | - | $ | 455,635 | ||||
| Issuance of common stocks in connection with conversion of convertible notes | $ | - | $ | 30,000,000 | ||||
| Issuance of common stocks in connection with private placements, net of issuance costs with proceeds collected in advance in November 2019 | $ | - | $ | 1,600,000 | ||||
| Issuance of common stocks in connection with warrant cashless exercise in March 2021 | $ | 1,439,826 | $ | - | ||||
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | $ | 1,593,857 | (1,538,276 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation of plant and equipment | 3,217 | - | ||||||
| Amortization of intangible assets | 1,029,186 | 883,938 | ||||||
| Amortization of right of use assets | 76,983 | - | ||||||
| Amortization of discount on convertible promissory notes | 111,000 | 40,833 | ||||||
| Interest expense for convertible promissory notes | 93,285 | 69,417 | ||||||
| Amortization of beneficial conversion feature of convertible promissory notes | 213,367 | - | ||||||
| Monitoring fee relating to convertible promissory notes | 69,685 | - | ||||||
| Deferred tax liabilities | (209,744 | ) | (205,458 | ) | ||||
| Share-based payment for service | - | 1,695,042 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Escrow account receivable | (54,985 | ) | - | |||||
| Inventories | (133,810 | ) | - | |||||
| Other current assets | (29,775 | ) | (696,357 | ) | ||||
| Prepayments | (1,891,842 | ) | (8,170,226 | ) | ||||
| Contract liabilities | 1,900,456 | 5,501,254 | ||||||
| Due to related parties | (21,259 | ) | 641,386 | |||||
| Due from third parties | (481,816 | ) | ||||||
| Due from related parties | 28,897 | (2,943,162 | ) | |||||
| Accounts payable | (116,078 | ) | - | |||||
| Income tax payable | 1,085,694 | 530,511 | ||||||
| Other current liabilities | 499,661 | (24,417 | ) | |||||
| Lease liabilities | (19,734 | ) | - | |||||
| Due to third party loans payable | 6,523 | - | ||||||
| Net cash provided by (used in) operating activities | 3,752,768 | (4,215,515 | ) | |||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of plant and equipment | (5,039 | ) | - | |||||
| Purchases of operating lease assets | (58,617 | ) | - | |||||
| Purchases of intangible assets | - | (5,090,323 | ) | |||||
| Loans made to related parties | - | (18,662,034 | ) | |||||
| Loans made to third parties | (60,177,853 | ) | (1,307,835 | ) | ||||
| Collection of loans from related parties | 11,066,822 | - | ||||||
| Investments in other investing activities | (828,601 | ) | - | |||||
| Net cash used in investing activities | (50,003,288 | ) | (25,060,192 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from issuance of common stock under ATM transaction | - | 2,192,988 | ||||||
| Proceeds from issuance of common stock under private placement transactions | 45,500,000 | 24,450,000 | ||||||
| Proceeds from convertible promissory notes | - | 4,500,000 | ||||||
| Proceeds from borrowings from related parties | - | 1,196,697 | ||||||
| Repayment made on loans from third parties | - | (185,103 | ) | |||||
| Net cash provided by financing activities | 45,500,000 | 32,154,582 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 13,794 | 57,113 | ||||||
| Net (decrease)/increase in cash and cash equivalents | (736,726 | ) | 2,935,988 | |||||
| Cash and cash equivalents at beginning of period | 4,311,068 | 2,700,013 | ||||||
| Cash and cash equivalents at end of period | $ | 3,574,342 | $ | 5,636,001 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest expenses | $ | 22,109 | $ | - | ||||
| Cash paid for income taxes | $ | 1,781 | $ | 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 | $ | 1,804,820 | $ | - | ||||
| 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
.
TD HOLDINGS, INC.1. ORGANIZATION AND BUSINESS DESCRIPTION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
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, and Hainan Baiyu Cross-border e-commerce Limited, a subsidiary of Tongdow HK, 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 VC during the six months ended June 30, 2021.
HMC was renamed Shenzhen Baiyu Jucheng Data TechonologyVenture Capital Co.,Ltd during the three months ended June 30, 2021.March 31, 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 | ● | A PRC limited liability company | A wholly owned subsidiary of Shanghai Jianchi | ||
| ● | Incorporated on | ||||
| ● | Registered capital of $1,417,736 (RMB 10 million) with registered capital fully paid-up | ||||
| ● | Engaged in commodity trading business and providing supply chain management services to customers | ||||
| ● | A | ||||
| ● | Incorporated on | ||||
| ● | Registered capital of $1,417,736 (RMB 10 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 | A wholly owned subsidiary of | ||
| ● | Incorporated on | |||
| ● | Registered capital of $4,523,857 (RMB 30 million) with registered capital of $736,506 (RMB 5 million) paid-up | |||
| ● | Engaged in commodity trading business and providing supply chain management services to customers | |||
| ||||
The following diagram illustrates our corporate structure as of March 31, 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 June 30, 2021March 31, 2022 and for the sixthree months ended June 30,March 31, 2022 and 2021 and 2020 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 USU.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, 20202021 previously filed with the SEC on June 4, 2021.March 16, 2022.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited condensed consolidated financial position as of June 30, 2021March 31, 2022 and its unaudited condensed consolidated results of operations for the three months ended March 31, 2022 and six months ended June 30, 2021, and 2020, and its unaudited condensed consolidated cash flows for the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, 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.
Error Correction
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 engaged agent who was engaged to complete the warrant waiver and exercise agreements discussed in Note 7.agreements.
The Company applied Black-Scholes model and determined the fair value of the warrants to be $1.7 million. 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 5 years, and volatility of 71.57%.
The Company’s quarterly financial statements ended March 31, 2021 contained an error related to above share-based payment for service. Management has determined such error was qualitatively immaterial and the correction was made during this quarter. No restatement to previouspreviously issued interim financial statements was deemed necessary.
The following table illustrates the correction of the error had it been shown in the statement of operations on March 31, 2021 in the interim financial statement in Form 10-Q filing on June 26, 2021:
| Three months ended March 31, 2021 | ||||
| Income from operations as reported | $ | 557,235 | ||
| Effect on share-based payment for service | (1,695,042 | ) | ||
| Loss from operations as revised | $ | (1,137,807 | ) | |
| Three months ended March 31, 2021 | ||||
| Income from operations as reported | $ | 557,235 | ||
| Effect on share-based payment for service | (1,695,042 | ) | ||
| Loss from operations as revised | $ | 1,137,807 | ) | |
| Three months ended March 31, 2021 | ||||
| Net income as reported | $ | 156,766 | ||
| Effect on share-based payment for service | (1,695,042 | ) | ||
| Net loss as revised | $ | (1,538,276 | ) | |
| Three months ended March 31, 2021 | ||||
| EPS as reported | $ | 0.00 | ||
| Effect on EPS | (0.02 | ) | ||
| EPS as revised | $ | (0.02 | ) | |
The Company included $1,695,042 as share-based payment for service on the condensed consolidated statement of operations for the six months ended June 30, 2021.
| ● | Use of estimates |
The preparation of these condensed consolidated financial statements in conformity with the US GAAP requires management to make estimates and judgmentsassumptions that affect the reported amounts of assets and liabilities, disclosuresdisclosure of contingent assets and liabilities onat the date of these condensed consolidatedthe financial statements, and the reported amounts of revenuesrevenue and expenses during the reporting periods. The Company bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Significant estimates and assumptions made by management include, among others, useful lives and impairment of long-lived assets, collectability of receivables, including accounts receivable, loans receivable, and amount due from related parties, advances to suppliers, allowance for doubtful accounts and fair value of goodwill. While the Company believes that the estimates and assumptions used in the preparation of these condensed consolidated financial statements are appropriate, actualperiod. Actual results could differ from those estimates. EstimatesOn an ongoing basis, management reviews these estimates using the currently available information. Changes in facts and assumptions are periodically reviewed andcircumstances may cause the effects of revisions areCompany to revise its estimates. Significant accounting estimates reflected in the condensed consolidated financial statements ininclude: (i) useful lives and residual value of long-lived assets; (ii) the period they are determined to be necessary.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 and its Hong Kong subsidiary is the United States dollars (“US$”). The Company’s PRC subsidiaries determined their functional currency to be 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 determinationconsolidated financial statements of functional currency is based on the criteria ofCompany have been translated into U.S. dollars in accordance with ASC 830, Foreign Currency Matters (“ASC 830”).Matters. The Company usesfinancial 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 RMBcapital transactions occurred. The effects of foreign currency translation adjustments are included as its reporting currency.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 financial statementsCompany evaluates the conversion feature to determine whether it was beneficial as described in ASC 470-20. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible notes payable and may not be settled in cash upon conversion, is treated as a discount to the convertible notes payable. This discount is amortized over the period from the date of issuance to the date the notes are due using the effective interest method. If the notes payable are retired prior to the end of their contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the Company and its Hong Kong subsidiary are translated from the functional currency to the reporting currency, RMB. Monetary assets and liabilitiesshares of the subsidiaries are translated into RMB using the exchange rate in effect at each balance sheet date. Income and expense items are translatedcommon stock at the average exchange rate prevailing during the fiscal year. Translation gains and losses are accumulated in other comprehensive loss, as a component of shareholders’ deficit in the consolidated financial statements.commitment date to be received upon conversion.
(d) Recent accounting pronouncement
Transactions denominated in other than the functional currencies are remeasured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Financial assets and liabilities denominated in other than the functional currency are re-measured into the functional currency at the exchange rates prevailing at the balance sheet date. The foreign exchange differences are recorded in the consolidated statements of comprehensive income (loss).
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.
The Company accounts for its convertible notes at issuance by allocating the proceeds received among freestanding instruments according to ASC 470, Debt ("ASC 470,") based upon their relative fair values. The fair value of debt and common stock is determined based on the closing price of the common stock on the date of the transaction, and the fair value of warrants, if any, is determined using the Black-Scholes option-pricing model. Convertible notes are subsequently carried at amortized cost. The fair value of the warrants is recorded as additional paid-in capital, with a corresponding debt discount from the face amount of the convertible note.
Each convertible note is analyzed for the existence of a beneficial conversion feature, defined as the fair value of the common stock at the commitment date for the convertible note less the effective conversion price. Beneficial conversion features are recognized at their intrinsic value, and recorded as an increase to additional paid-in capital, with a corresponding reduction in the carrying amount of the convertible note (as a debt discount from the face amount of the convertible note.) The discounts on the convertible notes, consisting of amounts ascribed to warrants and beneficial conversion features, are amortized to interest expense, using the effective interest method, over the terms of the related convertible notes. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is resolved.
Each convertible note is also analyzed for the existence of embedded derivatives, which may require bifurcation from the convertible note and separate accounting treatment.
The Company also analyzes the features of its convertible notes which, when triggered, mandate a downward adjustment to the instrument’s strike price (or conversion price) if equity shares are issued at a lower price (or equity-linked financial instruments are issued at a lower strike price) than the instrument’s then-current strike price. The purpose of the feature is typically to protect the instrument’s counterparty from future issuances of equity shares at a more favorable price.
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)” (“ASC 2019-10,”) 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 January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This guidance addresses accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. This standard is effective for the Group beginning January 1, 2022 including interim periods within the fiscal year. Early adoption is permitted. The Group does not expect any material impact on its consolidated financial statements.
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.
June 30, 2021 | December 31, 2020 | |||||||
| Loans receivable from third parties | $ | 59,504,874 | $ | 18,432,691 | ||||
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.
3. LOANS RECEIVABLE FROM THIRD PARTIES
March 31, 2022 | December 31, 2021 | |||||||
| Loans receivable from third parties | $ | 175,999,505 | $ | 115,301,319 | ||||
As of June 30, 2021,March 31, 2022, the Company has fifteeneleven loan agreements compared with fourten loan agreements on December 31, 2020.2021. The Company provided loans aggregating $45,057,871$60,177,853 for the purpose of making use of idle cash and maintaining long-term customer relationship and paid back $13,370,395collected $nil during the sixthree months ended June 30, 2021.March 31, 2022. These loans will mature in July 2021May 2022 through December 2021,September 2022, and chargescharge an interest rate of 10.95% per annum on these customers. The company has the right to pledge account receivable or inventory.
As of December 31, 2021, the Company had loans receivable balance of $115,301,319 due from ten customers. Interest income of $916,010 and$1,843,448$4,389,547 and $532,730 was recognizedaccrued for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively. Interest income of $1,400,678 and $1,884,923 was recognized for the six months ended June 30, 2021 and 2020. As of June 30, 2021March 31, 2022 and December 31, 2020,2021, the Company recorded an interest receivable of $545,670$3,893,736 and $1,290,864$3,090,353 as reflected under “other current assets” in the unaudited condensed consolidated balance sheets.
As of June 30, 2021March 31, 2022 and December 31,202031,2021 there was no allowance recorded as the Company considers all of the loanloans receivable fully collectible.
4. PLANT AND EQUIPMENT, NET
| March 31, 2022 | December 31, 2021 | |||||||
| Cost: | ||||||||
| Office equipment | $ | 8,552 | $ | 3,499 | ||||
| Accumulated depreciation: | ||||||||
| Office equipment | $ | (3,848 | ) | $ | (627 | ) | ||
| Plant and equipment, net | $ | 4,704 | $ | 2,872 | ||||
Depreciation expense was $3,217, and currency translation difference was $4 for the three months ended March 31, 2022. Purchase of office equipment was $5,039, and currency translation difference was $14 for the year ended March 31, 2022.
5. INTANGIBLE ASSETS
| June 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
| Customer relationships | $ | 20,339,875 | $ | 20,117,564 | $ | 20,701,931 | $ | 20,612,639 | ||||||||
| Software copyright | 5,107,410 | - | 5,198,324 | 5,175,902 | ||||||||||||
| Total | 25,447,285 | 20,117,564 | 25,900,255 | 25,788,541 | ||||||||||||
| Less: accumulative amortization | (2,448,169 | ) | (543,718 | ) | (5,580,376 | ) | (4,531,204 | ) | ||||||||
| Intangible assets, net | $ | 22,999,116 | $ | 19,573,846 | $ | 20,319,879 | $ | 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.
ForAmortization expense for the six monthsperiod ended June 30,March 31, 2022 and year ended December 31, 2021 and 2020, the Company amortized $1,895,871was $1,029,186 and $Nil3,927,961, respectively. The currency translation difference was $19,986 for the period ended March 31, 2022 and $59,525 for the year ended 31 December 2021 respectively.
No impairment loss was made against the intangible assets during the sixthree months ended June 30, 2021.March 31, 2022.
The estimated amortization expense for these intangible assets in the next five years and thereafter is as follows:
| Period ending June 30, 2021: | Amount | |||||||
| 2021 | $ | 2,023,075 | ||||||
| 2022 | 4,046,149 | |||||||
| Period ending March 31, 2022: | Amount | |||||||
| current year | $ | 3,088,629 | ||||||
| 2023 | 4,046,149 | 4,118,172 | ||||||
| 2024 | 4,046,149 | 4,118,172 | ||||||
| 2025 | 4,046,149 | 4,118,172 | ||||||
| 2026 | 4,118,172 | |||||||
| Thereafter | 4,791,445 | 758,562 | ||||||
| Total: | $ | 22,999,116 | $ | 20,319,879 | ||||
6. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative Instruments Not Designated As Hedge Accounting Treatment
On April 23 2021, Hainan Jianchi Import and Export Co., Ltd, a subsidiary of the Company, entered into a contract with CITIC Futures Co., Ltd to deal with futures business to hedging sales and purchase commodity products market price risks. The 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 of $379,166, and the notional amount is about $2.7 million as of March 31, 2022. The realized gain of $134,834 and unrealized loss of $38,470 for the three months ended March 31, 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 Baiyu Acquisition 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. At March 31, 2022 and December 31, 2021, goodwill was $71,335,973 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 March 31, 2022 and 2021.
8. BANK BORROWINGS
Bank borrowings represent the amounts due to Baosheng County Bank that are due within one year. As of March 31, 2022 and December 31, 2021, bank loans consisted of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Short-term bank loans: | ||||||||
| Loan from Baosheng County Bank | $ | 1,134,180 | $ | 1,129,288 | ||||
On August 7, 2020, Qianhai Baiyu entered into three loan agreements with Baosheng County Bank to borrow a total amount of RMB12 million as working capital for one year, with the maturity date of August 7, 2021. The three loans bear a fixed interest rate of 6.5% per annum. The three loans are guaranteed by Shenzhen Herun Investment Co., Ltd, Li Hongbin and Wang Shuang. The loans were repaid in 2020 and 2021, and were finally repaid on August 7, 2021.
In August 2021, Qianhai Baiyu entered into another 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. The two loans are guaranteed by Shenzhen Herun Investment Co., Ltd, Li Hongbin and Wang Shuang.
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:
| March 31, 2022 | December 31, 2021 | |||||||
| Right-of-use lease assets, net | $ | 864,671 | $ | 888,978 | ||||
| Lease Liabilities-current | $ | 337,372 | $ | 310,665 | ||||
| Lease liabilities-non current | 534,913 | 586,620 | ||||||
| Total | $ | 872,285 | $ | 897,285 | ||||
The weighted average remaining lease terms and discount rates for the operating lease were as follows as of March 31, 2022:
| 1.42-2.75 | ||||
| Weighted average discount rate | 4.75%-5.00 | % | ||
June 30, 2021 | December 31, 2020 | |||||||
| Finished goods | $ | 883,961 | $ | - | ||||
The balance represents a batchFor the three months ended March 31, 2021 and 2022, the Company charged total amortization of precious product from oneright-of-use assets of subsidiary Hiannan Jianchi on June 30, 2021.$nil and $76,983 respectively.
| June 30, 2021 | December 31, 2020 | |||||||
| Convertible notes – principal | $ | 5,346,934 | $ | - | ||||
| Convertible notes – discount | (326,667 | ) | - | |||||
| Convertible notes – interest | 199,093 | - | ||||||
| Convertible notes, net | $ | 5,219,360 | $ | - | ||||
The following is a schedule, by fiscal quarter, of maturities of lease liabilities as of March 31, 2022:
| Period ending March 31, 2022: | Amount | |||
| current year | $ | 264,752 | ||
| 2023 | 342,728 | |||
| 2024 | 322,178 | |||
| Total lease payments | 929,658 | |||
| Less: imputed interest | 57,373 | |||
| Present value of lease liabilities | 872,285 | |||
10. OTHER CURRENT LIABILITIES
| March 31, 2022 | December 31, 2021 | |||||||
| Accrued payroll and benefit | $ | 1,432,695 | $ | 1,265,106 | ||||
| Other tax payable | 2,977,306 | 2,092,869 | ||||||
| Others | 399,744 | 939,818 | ||||||
| $ | 4,809,745 | $ | 4,297,793 | |||||
11. CONVERTIBLE PROMISSORY NOTES
| March 31, 2022 | December 31, 2021 | |||||||
| Convertible notes – principal | $ | 2,545,988 | $ | 3,976,240 | ||||
| Convertible notes – discount | (415,000 | ) | (739,367 | ) | ||||
| Convertible notes – interest | 113,687 | 325,285 | ||||||
| Convertible notes, net | $ | 2,244,675 | $ | 3,562,158 | ||||
On January 6, 2021, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, a Utah limited liability company, pursuant to which the Company issued an unsecured promissory note in the original principal amount of $1,670,000, convertible into shares of common stock, for proceeds of $1,500,000. The Company recorded a debt discount of $170,000, which is being amortized over 12 months. On July 7, 2021, The Company settled the convertible promissory note of the principal amount of $200,000 and issued 260,254 shares of the Company’s common stock on July 8, 2021. On July 16, 2021, the Company settled convertible promissory notes of principal amount of $1,590,694 and amortized interests of $92,499, and issued 1,980,227 shares of the Company’s common stock on July 19, 2021.
On March 4, 2021, 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 Company settled convertible promissory notes of $300,000 On September 8, $250,000 on October 15, 2021, $400,000 on October 26, 2021, $100,000 on October 29, 2021, $350,000 on November 1, 2021 and $400,000 on November 9, 2021, and issued 488,982, 525,652, 875,350, 218,838, 765,931, and 875,350 shares of the Company’s common stock on September 15, October 18, 2021, October 28, 2021, November 2, 2021, November 3, 2021, and November 10, 2021, respectively during 2021. The Company settled convertible promissory notes of $200,000 on January 5, 2022, $175,000 on January 26, 2022, $175,000 on February 8, 2022, $200,000 on February 25, 2022, $375,000 on March 17, 2022, $500,000 on March 17, 2022 and $179,819 on March 18, 2022 respectively, and issued 644,662, 882,412, 943,701, 1,376,652, 2,581,222, 2,500,000 and 899,095 shares of the Company’s common stock on January 10, 2022, January 27, 2022, February 9, 2022, March 2, 2022, March 17, 2022, March 21, 2022, and March 22, 2022, respectively for the three months ended March 31, 2022.
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 above twothree Notes have a maturity date of 12 months with an interest rate of 10% per annum. The Company retains the right to prepay the Note at any time prior to conversion with an amount in cash equal to 125% of the principal that the Company elects to prepay at any time three months after the issue date, subject to a maximum monthly redemption amount of $187,500, or $375,000, $250,000 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 ““VWAP” (the volume weightedvolume-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.
During the period that these Notes are outstanding, the Company will reserve from its authorized and unissued shares of common stock more than 5,000,000 shares, free from preemptive rights, to provide for the issuance of the common stock upon the full conversion of the Notes. The earlier of (i) 45 days after filing of the PRE14C with SEC, or (ii) May 31,202131, 2021 under the assumption of no comments from PRE14C. In the event that the SEC has any comments toon the Company’s PRE14C, the Company agrees to grant an additional 30 days to meet the requirement no later than June 30, 2021. On May 3, the first two notes’ outstanding principal amount was increased to $1,790,694 and $3,556,240 or by 7%, respectively, due to a standstill fee application from the borrower. A modification loss of $356,934 was recognized in the condensed consolidated statement of operations in relation to this non-substantial notes modification.
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”470”). According to ASC 470, an embedded beneficial conversion feature present in a convertible instrument shall be recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. Pursuant to the agreement, the Company shall recognize embedded beneficial conversion features three months after commitment date of $417,500$459,250, $913,000 and $830,000$610,000 respectively. The Company will not recognize embedded beneficial conversion features of $447,674 and $889,060 until July 2021 due to the effective of standstill agreement.agreement for the first two notes. Beneficial conversion features have been recognized into discount on convertible promissory notes and additional paid-in capital and such discount will be amortized in twelve months until the notes will be settled. For the year ended December 31, 2021, the Company has recognized the amortization of beneficial conversion feature $459,250, $ 852,133, and $152,500 to profit. For the three months ended March 31, 2022, the Company has recognized the amortization of beneficial conversion feature $nil, $60,867, and $152,500 to profit.
12. CAPITAL TRANSACTIONS
Common stock issued in private placements
On January 7,August 26, 2021, the Company entered into a certain securities purchase agreement with twoeight investors, the ChairmanMr. Shuxiang Zhang and CEOMs. Huiwen Hu, affiliates of the Company, Ouyang Renmei and another shareholdercertain other six non-affiliate purchasers who are “non-U.S. Persons” pursuant to which the Company agreed to sell an aggregate of 15,000,00065,000,000 shares of Common Stock, at a per share market price of $1.63.$0.7. The transaction was consummated on January 12, 202111, 2022 by the issuance of 15,000,00065,000,000 shares of Common Stock. The Company received proceeds of $24,450,000$45,500,000 in January 2021.2022.
Common stock issued in registered direct offeringpursuant to the conversion of convertible promissory notes
The Company settled convertible promissory notes of $200,000 on January 5, 2022, $175,000 on January 26, 2022, $175,000 on February 8, 2022, $200,000 on February 25, 2022, $375,000 on March 17, 2022, $500,000 on March 17, 2022 and $179,819 on March 18, 2022 respectively, and issued 644,662, 882,412, 943,701, 1,376,652, 2,581,222, 2,500,000 and 899,095 shares of the Company’s common stock on January 10, 2022, January 27, 2022, February 9, 2022, March 2, 2022, March 17, 2022, March 21, 2022, and March 22, 2022, respectively for the three months ended March 31, 2022.
On January 20,Warrants
A summary of warrants activity for the three months ended March 31, 2022 was as follows:
| Number of shares | Weighted average life | Weighted average exercise price | Intrinsic Value | |||||||||||||
| Balance of warrants outstanding as of December 31, 2021 | 19,273,370 | 4.70 years | $ | 1.43 | - | |||||||||||
| Granted | - | - | - | - | ||||||||||||
| Exercised | - | - | $ | - | - | |||||||||||
| Balance of warrants outstanding as of March 31, 2022 | 19,273,370 | 4.45 years | $ | 1.43 | - | |||||||||||
As of December 31, 2021, the Company entered into a securities purchase agreement, pursuant to which the Company agreed to sell to certain investor an aggregate of 478,468had 19,273,370 shares of common stockwarrants, among which 273,370 shares of warrants were issued to two individuals in a registered direct offering, for gross proceedsprivate placements, and 19,000,000 shares of approximately $1.07 million. The Company received proceeds of $834,845warrants were issued in January 2021 after deducting the agent commission and other professional fee.three private placements closed on September 22, 2021.
On February 8, 2021,In connection with 19,000,000 shares of warrants, the Company entered intoissued warrants to investors to purchase a securities purchase agreement, pursuant to which the Company agreed to sell to certain investor an aggregatetotal of 775,00019,000,000 ordinary shares with a warrant term of common stock in a registered direct offering, for gross proceeds of approximately $1.62 million.five (5) years. The Company received proceeds of $1,358,144 in February 2021 after deducting the agent commission and other professional fee.
Common stocks issued for exercise of warrants by holders of warrants
On March 10, 2021, the Company entered into certain waiver and warrant exercise agreements with some institutional investors, which modified (a) 100,000 warrants withhave an exercise price of $1.32 originally issued on April 15, 2019 in a common stock private placement and (b) 1,530,000 warrants with an exercise price of $2.20 originally issued on March 23, 2019 in a common stock private placement. The modification of these warrant agreements lowered the exercise prices to $0.95$1.15 per warrant and $1.17 per warrant, respectively, and allowed the holders to exercise the warrants on a cashless basis. In March 2021, the holders exercised 1,630,000 warrants on a cashless basis, resulting in the issuance of 808,891 shares of common stock. The Company recorded the modification and the cashless exercise of the warrants as a reduction of retained earnings, similar to a dividend, and an increase in additional paid-in capital, using a fair value of $1,439,826, estimated according to “free distribution” accounting practice.share.
On March 10,The Warrants ended on December 31, 2021 the Company entered into certain waiverare subject to anti-dilution provisions to reflect stock dividends and warrant exercise agreements with some institutional investors, which modified (a) 100,000 warrants with an exercise price of $1.32 originally issued on April 15, 2019 in a common stock private placement and (b) 1,530,000 warrants with an exercise price of $2.20 originally issued on March 23, 2019 in a common stock private placement. The modification of these warrant agreements lowered the exercise prices to $0.95 per warrant and $1.17 per warrant, respectively, and allowed the holders to exercise the warrants on a cashless basis. In March 2021, the holders exercised 1,630,000 warrants on a cashless basis, resulting in the issuance of 808,891 shares of common stock. The Company recorded the modification and the cashless exercise of the warrantssplits or other similar transactions, but not as a reductionresult of retained earnings, similar to a dividend,future securities offerings at lower prices. The warrants did not meet the definition of liabilities or derivatives, and an increase in additional paid-in capital, using a fair value of $1,439,826, estimated according to “free distribution” accounting practice.
as such they are classified as equity.
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 $1.7 million. 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 5 years, and volatility of 71.57%.
On April 27, 2021, the Company entered warrant exercise agreements and received proceeds of $7,500 and issued 750,000 common stock.
Warrants13. Earnings (LOSS) PER SHARE
A summary of warrants activity for the six months ended June 30, 2021 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, 2020 | 1,903,370 | 3.13 years | $ | 21 | ||||||||||||
| Granted | 750,000 | 5 years | 0.01 | |||||||||||||
| Exercised | (2,380,000 | ) | $ | 1.48 | ||||||||||||
| Balance of warrants outstanding and exercisable as of June 30, 2021 | 273,370 | 1.44 years | $ | 21 | 0 | |||||||||||
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. Diluted income per share is calculated by dividing net income attributable toAs of March 31, 2022, the principal amount and interest expense of convertible promissory notes are $2,545,988 and $113,687. Total obligations of $2,659,675 may be dilutive common shares byin the weighted average number of common and dilutive common equivalents shares outstanding during the period. Common equivalents shares consist of shares issuable upon the conversion of convertible notes using the if-converted method.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 sixthree months ended June 30,March 31, 2022 and 2021 and 2020 respectively:
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net income (loss) | $ | 1,593,857 | $ | (1,538,276 | ) | |||
| Weighted Average Shares Outstanding-Basic | 198,441,160 | 93,209,034 | ||||||
| Weighted Average Shares Outstanding- Diluted | 213,552,950 | 95,764,295 | ||||||
| Net income/(loss) per share - basic and diluted | ||||||||
| Net income/(loss) per share from continuing operations – basic | $ | 0.01 | $ | (0.02 | ) | |||
| Net income/(loss) per share from continuing operations – diluted | $ | 0.01 | $ | (0.02 | ) | |||
| For the Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net loss attributable to TD Holdings, Inc.’s Stockholders | $ | (1,180,420 | ) | $ | (5,809,897 | ) | ||
| Weighted Average Shares Outstanding-Basic | 95,025,014 | 30,579,616 | ||||||
| Net loss per share - basic and diluted | ||||||||
| Net loss per share from continuing operations – basic and diluted | $ | (0.01 | ) | $ | (0.17 | ) | ||
| Net income (loss) per share from discontinued operations – basic and diluted | $ | - | $ | (0.02 | ) | |||
| For the Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net income (loss) attributable to TD Holdings, Inc.’s Stockholders | $ | 357,856 | $ | (5,462,485 | ) | |||
| Weighted Average Shares Outstanding-Basic | 96,821,039 | 47,486,210 | ||||||
| Weighted Average Shares Outstanding-Diluted | 102,312,155 | - | ||||||
| Net loss per share - basic and diluted | ||||||||
| Net income (loss) per share from continuing operations – basic | $ | (0.00 | ) | $ | (0.11 | ) | ||
| Net income (loss) per share from continuing operations – diluted | $ | (0.00 | ) | $ | - | |||
| Net income (loss) per share from discontinued operations – basic and diluted | $ | - | $ | (0.01 | ) | |||
14. INCOME TAXES
Effective January 1, 2008, theThe New Taxation Law of PRC, which was effective on January 1, 2008, stipulates thatthose domestic enterprises and foreign investedforeign-invested enterprises (the “FIEs”) 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 sixthree months ended June 30, 2021,March 31, 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 June 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had deferred tax assets of $4,167,055$6,622,947 and $4,452,837,$4,878,864, respectively. The Company maintains a full valuation allowance on its net deferred tax assets as of June 30, 2021.March 31, 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 sixthree months ended June 30,March 31, 2022 and 2021, and 2020, the Company had current income tax expenses of $771,863$1,087,475 and $nil,$603,616, respectively, and deferred income tax benefit of $548,982$209,744 and $203,147 in the connection of intangible assets generated from Baiyu acquisition, and $nil, 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 beingto be realized upon settlement. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision for income taxes. The Company is subject to income taxes in the PRC. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. There were no uncertain tax positions as of June 30, 2021March 31, 2022 and December 31, 20202021, and the Company does not believe that its unrecognized tax benefits will change over the next twelve months.
15. RELATED PARTY TRANSACTIONS AND BALANCES
| 1) | Nature of relationships with related parties |
| Name | Relationship with the Company | |
| Shenzhen Qianhai Baiyu Supply Chain Co., Ltd. (“Qianhai Baiyu”) | Controlled by Mr. Zhiping Chen, the legal representative of Huamucheng, prior to March 31, 2020 | |
| Guangzhou Chengji Investment Development Co., Ltd. (“Guangzhou Chengji”) | Controlled by Mr. Weicheng Pan, who is an independent director of the | |
| Yunfeihu International E-commerce Group Co., Ltd (“Yunfeihu”) | An affiliate of the Company, over which an immediate family member of Chief Executive Officer 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 | |
| Hainan Tongdow International Trade Co.,Ltd. | Controlled by an immediate family member of Chief Executive Officer of the | |
| Yunfeihu modern logistics Co.,Ltd (“Yunfeihu Logistics”) | Controlled by an immediate family member of Chief Executive Officer of the | |
| Shenzhen Tongdow Jingu Investment Holding Co.,Ltd (“Shenzhen | 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 TD Holdings |
| 2) | Balances with related parties |
| - | Due from related parties |
As of June 30, 2021March 31, 2022 and December 31, 2020,2021, the balances with related parties were as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Yunfeihu (i) | - | 11,358,373 | ||||||
| Total due from related parties | $ | - | $ | 11,358,373 | ||||
| June 30, 2021 | December 31, 2020 | |||||||
| TD International Trade (i) | $ | - | $ | 4,592,698 | ||||
| Yangzhou TD (i) | - | 3,041,180 | ||||||
| Zhejiang TD (i) | - | 8,734,024 | ||||||
| Beijing TD (ii) | 1,996,679 | - | ||||||
| Yunfeihu (ii) | 12,823,068 | 19,830,214 | ||||||
| Yunfeihu Logistics (ii) | 1,496,003 | - | ||||||
| TD E-commerce (ii) | 2,880,373 | - | ||||||
| Shenzhen Jingu (ii) | 404,314 | - | ||||||
| Guangdong TD | 154,910 | - | ||||||
| TTHD (ii) | 610,696 | 19,640,929 | ||||||
| Total due from related parties | $ | 20,366,043 | $ | 55,839,045 | ||||
| (i) | |
| The balance due from Yunfeihu represented loans provided to the related | |
| - | Due to related parties |
| June 30, 2021 | December 31, 2020 | |||||||
| Guangzhou Chengji (1) | $ | 1,347,011 | $ | 1,878,511 | ||||
| Yunfeihu (2) | - | 4,235,680 | ||||||
| Guangdong TD (2) | - | 612,313 | ||||||
| Shenzhen Meifu (2) | - | 317,637 | ||||||
| Beijing TD (2) | 93 | 300,992 | ||||||
| Other related parties | 2,076 | 888 | ||||||
| Total due to related parties | $ | 1,349,180 | $ | 7,346,021 | ||||
| March 31, 2022 | December 31, 2021 | |||||||
| Other related parties | $ | - | $ | 21,174 | ||||
| Total due to related parties | $ | - | $ | 21,174 | ||||
| 3) | Transactions with related parties |
For the three and six months ended June 30,March 31, 2022 and 2021, the Company generated revenues from below related party customers:
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue from sales of commodity products | ||||||||
| Yunfeihu | $ | - | $ | 18,764,527 | ||||
| Yangzhou TD | - | 1,638,488 | ||||||
| Total revenues generated from related parties | $ | - | 20,403,015 | |||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue from sales of commodity products | ||||||||||||||||
| Yunfeihu | $ | 1,523,616 | $ | 1,251,591 | $ | 20,284,870 | $ | 1,921,586 | ||||||||
| Yangzhou TD | - | - | 1,641,761 | |||||||||||||
| TD International Trade | - | 312,078 | - | 695,715 | ||||||||||||
| 1,523,616 | 1,563,669 | 21,926,631 | 2,617,301 | |||||||||||||
| Revenue from supply chain management services | ||||||||||||||||
| Yunfeihu | - | 26,949 | - | 70,596 | ||||||||||||
| Total revenues generated from related parties | $ | 1,523,616 | $ | 1,590,618 | $ | 21,926,631 | $ | 2,687,897 | ||||||||
| - | Purchases from a related party |
For the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, the Company purchased commodity products from below related party vendors:
| For The Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Purchase of commodity products | ||||||||
| Yangzhou TD | $ | - | 6,788,055 | |||||
| TD International Trade | - | 1,119,150 | ||||||
| Hainan TD | - | 3,682,488 | ||||||
| Zhejiang TD | - | 7,934,983 | ||||||
| Yunfeihu | - | 1,638,101 | ||||||
| $ | - | 21,162,777 | ||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Purchase of commodity products | ||||||||||||||||
| Yunfeihu | $ | - | $ | - | $ | 1,641,373 | $ | - | ||||||||
| Zhejiang TD | - | - | 7,950,833 | - | ||||||||||||
| Hainan TD | - | - | 3,689,844 | - | ||||||||||||
| TD International Trade | - | 1,256,218 | 1,121,386 | 1,256,218 | ||||||||||||
| Yangzhou TD | - | - | 6,801,614 | - | ||||||||||||
| $ | - | $ | 1,256,218 | $ | 21,205,050 | $ | 1,256,218 | |||||||||
For the three months ended March 31, 2021 and six months ended June 30, 2021,2022, the Company purchased copyright software of $5,107,410$5,033,096 from “Yunfeihu”.Yunfeihu and $nil, respectively.
On August 28, 2020 when the Company closed disposition of HC High Summit Limited, the Company’s used luxurious car leasing business met all the conditions required in order to be classified as a discontinued operation. Accordingly, the operating results of used luxurious car leasing business are reported as a loss from discontinued operations in the accompanying consolidated financial statements for all periods presented. In addition, the assets and liabilities related to our used luxurious car leasing business are reclassified as assets and liabilities of discontinued operations in the accompanying consolidated balance sheets at June 30, 2020.
The summarized operating results of the discontinued operation included in the Company’s unaudited interim condensed consolidated statements of operations consist of the following:16. COMMITMENTS AND CONTINGENCIES
For the six months ended | ||||
| Revenues | $ | 14,051 | ||
| Cost of revenues | 323,608 | |||
| Gross loss | (309,557 | ) | ||
| Operating expenses | 175,961 | |||
| Other expense | 66,927 | |||
| Loss before income taxes | (552,445 | ) | ||
| Income taxes | - | |||
| Net loss from discontinued operations | $ | (552,445 | ) | |
| 1) |
The Company leases offices which are classified asa Non-cancellable operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases with initial term of 12 months or less are not recorded on the balance sheet.
AsThe following table sets forth our contractual obligations as of June 30, 2021, the Company had one lease arrangement with an unrelated third party with a monthly rental fee of approximately $7,200. The lease term was within 12 months, which will be due in August 2021. As of the date of this report, the Company cannot reasonably assess whether it will renew the lease term.March 31, 2022：
| Payment due by March 31 | ||||||||||||||||
| Total | 2023 | 2024 | 2025 | |||||||||||||
| Operating lease commitments for property management expenses under lease agreements | $ | 84,941 | $ | 30,888 | $ | 30,888 | $ | 23,165 | ||||||||
Lease expenses for the three months ended June 30, 2021 and 2020 were $47,008 and $92,414, respectively. Lease expenses for the six months ended June 30, 2021 and 2020 were $17,093 and $187,538, respectively.
| 2) | Contingencies |
On February 3, 2015, a purported shareholder Kiran Kodali filed a putative shareholder derivative complaint against the Company, alleging that the Company and its former officers and directors violated their fiduciary duties, grossly mismanaged the Company and were unjustly enriched based upon the transfer that was the subject of the Internal Review and other grounds substantially similar to those asserted in the class action complaints.2020 Court Matter with Harrison Fund
On July 16, 2019, the Company received a copy of the final order and judgment that the Court entered on July 11, 2019, approving the settlement set forth in the Stipulation. The Stipulation provides for dismissal of the Derivative Action as to the Company and the Individual Defendants, and the Company agrees to adopt or maintain certain corporate governance reforms for at least three years. The Stipulation also provides for attorneys’ fees and expenses to be paid by the Individual Defendants’ insurance carriers to plaintiffs’ counsel.
On December 21, 2017, the Company delivered notice (“Notice”) to Sorghum notifying Sorghum that certain recent actions of Sorghum constituted breaches of Sorghum’s covenants under the Exchange Agreement. Specifically, we believe that Sorghum is in breach of Section 6.9 (a and Section 6.11 (b of the Exchange Agreement which required Sorghum to use commercially reasonable efforts and to cooperate fully with the other parties to consummate the transactions contemplated by the Exchange Agreement and to make its directors, officers and employees available in connection with responding in a timely manner to SEC comments. According to the terms of the Exchange Agreement, the Company is entitled to terminate the Exchange Agreement if the breach is not cured within twenty (20 days after the Notice is provided to Sorghum.
On January 25, 2018, the Company filed an arbitration demand (“Arbitration Demand” with the American Arbitration Association (“AAA”) against Sorghum in connection with Sorghum’s breach of the Exchange Agreement.
On July 30, 2018, Arbitrator entered a reasoned award, accepting the Company’s proposal for resolution, awarding the Company damages of $1,436,522 against Sorghum and denying Sorghum’s Counterclaim against the Company in its entirety with prejudice. Sorghum has sought to vacate the arbitration award by filing a petition to vacate the arbitration award in the Supreme Court for the State of New York, New York County. The Court heard the Company and Sorghum’s arguments on May 1, 2019, and entered an order vacating the arbitration award. The Company vigorously opposed and moved to confirm the arbitration award on May 6, 2019. On June 5, 2019, the Company filed a notice of appeal with the New York Supreme Court Appellate Division First Department. The appeal was scheduled to be mediated on November 20, 2019. On November 15, 2019, the Company withdrew its appeal filed June 5, 2019, upon the stipulation of the parties and accordingly, the arbitration award is deemed to be vacated.
On August 2, 2018, the Company became party to an action filed by Shanghai Nonobank Financial Information Service Co. Ltd. (“Plaintiff”) in the Supreme Court for the State of New York, New York County (“NY Supreme Court” (Index No. 653834/2018 (the “Action”). Plaintiff’s complaint seeks to recover approximately $3.5 million of Plaintiff’s funds that were allegedly required to be held in escrow in New York pursuant to an agreement by and between Plaintiff, Yang Jie and Yi Lin (the “Complaint”). Plaintiff has alleged that the funds were required to be held in escrow in a New York attorney trust account pending the alleged consummation of a merger between Plaintiff’s parent company and the Company. Plaintiff alleged two causes of action against the Company for fraud/fraudulent inducement and conversion. On August 30, 2018, the Company filed a motion to dismiss Plaintiff’s causes of action against the Company. The Court has scheduled oral arguments on the Company’s motion to dismiss for May 1, 2019.
On July 15, 2019, the Company received a copy of the decision and order the Court entered on July 12, 2019, granting the Company’s motion to dismiss the Complaint in its entirety as against the Company without prejudice, with costs and disbursements to the Company as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of the Company.
On April 6, 2020, the Company filed a law suitlawsuit 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 ofon its investment from Harrison Fund. When the Company failed to obtain a response from Harrison Fund, it filed the 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.
b 2021 Convertible Promissory Notes Beneficial convertible features
On January 6, 2021, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, a Utah limited liability company, in the original principal amount of $1,670,000 convertible into shares of common stock of $1,500,000 in gross proceeds. On March 4, 2021, the Company entered into an additional securities purchase agreement in the original principal amount of $3,320,000 convertible into shares of common stock of $3,000,000 in gross proceeds. On October 4, 2021, the Company entered into a securities purchase agreement with Atlas Sciences, LLC, a Utah limited liability company, in the original principal amount of $2,220,000 convertible into shares of common stock of $2,000,000 in gross proceeds.
The Company shall have the right to redeem all or any portion of the convertible promissory note dated as of January 6, 2021 and March 4, 2021 after three months of the issue date and the convertible promissory note dated as of October 4, 2021 after six months of the issue date. Upon evaluation, embedded beneficial conversion features shall be recognized at $459,250, $913,000 and $610,000, respectively.
17. Risks and uncertainties
Financial instruments(1) Credit risk
Assets that are potentially subject the Company to credit risk consist principally of trade receivables and advances to suppliers. The Company believes thea significant concentration of credit risk in itsprimarily consist of cash and cash equivalents and trade receivables and advanceswith its customers. The maximum exposure of such assets to supplierscredit risk is substantially mitigatedtheir carrying amount as at the balance sheet dates. As of March 31, 2022, approximately $3.51 million was primarily deposited in financial institutions located in Mainland China, which were uninsured by its ongoingthe government authority. To limit exposure to credit evaluation process and relatively short collection terms.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 does not generally require collateral from customers. Theconsiders the credit standing of customers when making sales to manage the credit risk. Considering the nature of the business at current, the Company evaluates the need for an allowance for doubtful accounts based upon factors surroundingbelieves 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 specific customers, historical trendsoperations may be influenced by the political, economic and other information. Alllegal environments in the PRC as well as by the general state of the PRC’s economy. In addition, the Company’s cash is maintainedbusiness may be influenced by changes in governmental policies with banks withinrespect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, rates and methods of taxation, and the People’s Republicextraction of China of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts. The Company performs ongoing credit evaluations of its customers and key suppliers to help further reduce credit risk.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.
The Company is required to meet specified financial requirements to maintain its listing on the Nasdaq Capital Market. The minimum bid price per share of its common shares has been below $1.00 for a period of 30 consecutive business days and, therefore, no longer meets the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2). The Company hasn’t until February 28, 2022 to regain compliance, it must prove to be eligible for an additional 180 calendar days that the Company meets the continued listing requirement for the market value of publicly held shares and all other initial listing standards for Nasdaq except for Nasdaq Listing Rule 5550(a)(2). On March 1, 2022, the Company has received notice from Nasdaq indicating that, while it has not regained compliance with the minimum bid price requirement, the Staff of Nasdaq has determined that the Company is eligible for an additional 180 calendar day period, or until August 29, 2022, to regain compliance. If the Company doesn’t regain compliance until August 29, 2022, Nasdaq will provide notice that the common stock of the Company will be subject to delisting from trading.
| (3) | Foreign currency risk |
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 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 significantsignificantly affected.
| June 30, 2021 | December 31, 2020 | |||||||
| Balance sheet items, except for equity accounts | 6.4612 | 6.5326 | ||||||
| For the Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Items in the statements of operations, comprehensive loss and statements of cash flows | 6.4700 | 7.0339 | ||||||
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.
| (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 by the general state of the PRC economy. In light of the uncertain and rapidly evolving situation relating to the spread of the coronavirus (COVID-19),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 closure of our luxury car rental facilities, interruptions in the supply of commodities, personnel absences and restrictions on the luxury car rental services or delivery and storage of commodities, any of which could have adverse ripple effects on our luxurious car leasing business and 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.rapidly. 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 onnegatively affect 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 whichthat 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 substantially before they are sold to its customers. The Company has a single performance obligation to sell metal products to the buyers. The Company estimates the amount of variable consideration, including sales return using the expected value method and includes variable consideration in the transaction price to the extent that it is probable that a significant reversal will not occur. Revenue for precious metal trading under the direct sales model is recognized at a point in time when the single performance obligation is satisfied when the products are delivered to the customer. We are under the risk of the economic environment in general and specific to the precious metal industry and to China as well as changes to the existing governmental regulations.
Commodity trading in China is subject to seasonal fluctuations, which may cause our revenues to fluctuate from quarter to quarter. We generally experience less user traffic and purchase orders during national holidays in China, particularly during the Chinese New Year holiday season in the first quarter of each year. Consequently, the first quarter of each calendar year generally contributes the smallest portion of our annual revenues. Furthermore, as we are substantially dependent on sales of precious metal,metals, our quarterly revenues and results of operations are likely to be affected by price fluctuation under macroeconomic circumstancecircumstances 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.
| SUBSEQUENT EVENTS |
The Company settled convertible notesBy written consent dated April 13, 2022, as permitted by Section 228 of $200,000 on July 7,the Delaware General Corporation Law and Section 8 of Article II of our bylaws, the stockholders who have the authority to vote a majority of the outstanding shares of Common Stock approved and ratified the following corporate actions: (i)(a) the entry into that certain securities purchase agreements dated as of January 6, 2021, March 4, 2021, and $1,683,193.1 on July 16,October 4, 2021, respectively, by and between the Company and two institutional purchasers (collectively, the “2021 Investors”), pursuant to which the Company has issued that certain unsecured promissory notes (collectively, the “2021 Notes”) dated as of January 6, 2021, March 4, 2021, and issued 260,254October 4, 2021, respectively, to the 2021 Investors; and 1,980,227(b) the issuance of shares of Common Stock in excess of 19.99% of the Company’s common stock on July 8,currently issued and outstanding shares of Common Stock of the Company upon the conversion of the 2021 Notes; and July 19,(ii)(a) the future sale and issuance of convertible promissory notes under similar terms and conditions with the 2021 respectively.Notes and the purchase agreements (the “Future Notes”) to the 2021 Investors for an aggregate purchase price of no more than $5 million within ninety (90) days following the conversion of the 2021 Notes; and (b) the future issuance of shares of Common Stock in excess of 19.99% of the then-current issued and outstanding shares of Common Stock of the Company upon the conversion of the Future Notes.
On July 16, 2021,May 6, 2022, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, a Utah limited liability company (the “2022 Investor”), pursuant to which the Company issued 140,000the 2022 Investor a convertible promissory note on May 6, 2022 in the original principal amount of $3,320,000.00 (the “2022 Note”), convertible into shares of Common Stock, $0.001 par value per share, of the Company’s common stockCompany, for $3,000,000.00 in gross proceeds. By written consent dated May 10, 2022, as compensationpermitted by Section 228 of the Delaware General Corporation Law and Section 8 of Article II of our bylaws, the stockholders who have the authority to vote a PR service provider for increasingmajority of the Company’s visibilityoutstanding shares of Common Stock approved the following corporate actions: (i) the entry into a purchase agreements dated as of May 6, 2022 by and between the Company and Investor, pursuant to which the Company issued the 2022 Note dated as of May 6, 2022 to the 2022 Investor; and (ii) the issuance of shares of Common Stock in excess of 19.99% of the financial news community.currently issued and outstanding shares of Common Stock of the Company upon the conversion of the 2022 Note.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
As of June 30, 2021,March 31, 2022, the Company had onetwo business linelines, which isare the commodities trading business.business and supply chain management services.
Commodities trading business
The commodity trading business primarily involves purchasing non-ferrous metal product,products, such as aluminiumaluminum 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 from providing related supply chain management services in the PRC.
For the sixthree months ended June 30, 2021,March 31, 2022, the Company recorded revenue of $88,949,479$47,583,965 from its commodities trading business and $472,425$575,151 from its commodity distributionsdistribution services and other related services, respectively.
For the three months ended June 30, 2021, the Company recorded revenue of $59,512,997 from commodities trading business and $326,650 from commodity distributions 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 manufactures whomanufacturers that need these metals in large quantity.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 three months ended March 31, 2022, the Company earned other supply chain management services revenue of $575,151 with twelve third party customers, compared with a commodity distribution services revenue of $145,775 to third party customers for the same period ended March 31, 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
The CompanyShenzhen Baiyu Jucheng has obtained all material approvals, permits, licenses and certificates required for our metal product trading operations, including registrations from the local business and administrative department authorizing the purchase of raw materials.
Key Factors Affecting Our Results of Operation
The commodities trading industry is alsohas been experiencing decreasing demand as a result of China’s overall economic slowdown. We expect competition in the commodities trading business to persist and intensify.
We have a limited operating history, having just started our commodities trading business in late November 2019. We believe our future success depends on our ability to significantly increase sales as well as maintain profitability from our operations. Our limited operating history makes it difficult to evaluate our business and future prospects. You should consider our future prospects in light of the risks and challenges encountered by a company with a limited operating history in an emerging and rapidly evolving industry. These risks and challenges include, among other things,
| ● | our ability to continue our growth as well as maintain profitability; |
| ● | preservation of our competitive position in the commodities trading industry in China; |
| ● | our ability to implement our strategies and make timely and effective responses to competition and changes in customer preferences; |
| ● | recruitment, training and retaining of qualified managerial and other |
| ● | 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 needingour 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.
Recent Developments
Results of Operations
The Company established several subsidiaries in Hainan province and Yangzhou
Three Months Ended March 31, 2022 as Compared to take advantage of beneficial local offshore supportive policies that encourageThree Months Ended March 31, 2021
| For the Three Months Ended March 31, | Change | |||||||||||||||
| 2022 | 2021 | Amount | % | |||||||||||||
| Revenues | ||||||||||||||||
| - Sales of commodity products – third parties | $ | 47,583,965 | $ | 9,033,467 | $ | 38,550,498 | 427 | % | ||||||||
| - Sales of commodity products – related parties | - | 20,403,015 | (20,403,015 | ) | (100 | )% | ||||||||||
| - Supply chain management services | 575,151 | 145,775 | 429,376 | 295 | % | |||||||||||
| Total Revenues | 48,159,116 | 29,582,257 | 18,576,859 | 63 | % | |||||||||||
| Cost of revenues | ||||||||||||||||
| - Commodity product sales – third parties | (47,590,576 | ) | (9,032,412 | ) | (38,558,164 | ) | 427 | % | ||||||||
| - Commodity product sales – related parties | - | (20,386,181 | ) | 20,386,181 | (100 | )% | ||||||||||
| - Supply chain management services | (11,602 | ) | (1,050 | ) | (10,552 | ) | 1005 | % | ||||||||
| Total operating cost | (47,602,178 | ) | (29,419,643 | ) | (18,182,535 | ) | 62 | % | ||||||||
| Gross profit | 556,938 | 162,614 | 394,324 | 242 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general, and administrative expenses | (2,247,707 | ) | (1,570,379 | ) | (677,328 | ) | 43 | % | ||||||||
| Share-based payment for service | - | (1,695,042 | ) | 1,695,042 | 100 | % | ||||||||||
| Total operating expenses | (2,247,707 | ) | (3,265,421 | ) | 1,017,714 | (31 | )% | |||||||||
| Other income, net | ||||||||||||||||
| Interest income | 4,390,341 | 2,098,857 | 2,291,484 | 109 | % | |||||||||||
| Interest expenses | (110,326 | ) | (127,423 | ) | 17,097 | (13 | )% | |||||||||
| Amortization of beneficial conversion feature relating to convertible promissory notes | (213,367 | ) | - | (213,367 | ) | 100 | % | |||||||||
| Other income(expenses), net | 95,709 | (6,434 | ) | 102,143 | (1588 | )% | ||||||||||
| Total other income, net | 4,162,357 | 1,965,000 | 2,197,357 | 112 | % | |||||||||||
| Net income (loss) before income taxes | 2,471,588 | (1,137,807 | ) | 3,609,395 | (317 | )% | ||||||||||
| Income tax expenses | (877,731 | ) | (400,469 | ) | (477,262 | ) | 119 | % | ||||||||
| Net income (loss) | $ | 1,593,857 | $ | (1,538,276 | ) | $ | 3,132,133 | (204 | )% | |||||||
Revenue
For the development of more commercial transactions or high technology industries. The majority ofthree months ended March 31, 2022, we generate revenue from the following two sources, including (1) revenue from sales of commodity products during, (2) revenue from supply chain management services. Total revenue increased by $18,576,859 or 63%, from $29,582,257 for the six months ended June 30, 3021 and three months ended June 30,March 31, 2021 wereto $48,159,116 for the three months ended March 31, 2022, among which revenue from commodity trading and supply chain management accounted for 98.8% and 1.2%, respectively, of our total revenue for the three months ended March 31, 2022. For the three months ended March 31, 2021, 99.5% of our revenue was generated from sales of commodity products and 0.5% was from supply chain management services.
| (1) | Revenue from sales of commodity products |
For the Hainan subsidiary.three months ended March 31, 2022, the Company sold non-ferrous metals to thirteen third party customers at fixed prices compared with four related party customers for the same period in 2021, and earned revenues when the product ownership was transferred to its customers.
The Company earned revenues of $47,583,965 from sales of commodity products for the three months ended March 31, 2022 compared with $29,436,482, with an increase of $18,147,483 or 62%, which is mainly due to gradual success on business transfer and active commodity market influenced by the macro-economy condition.
| (2) | Revenue from supply chain management services |
In connection with the Company’s commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help upstream metal and mineral suppliers sell their metal products, the Company launched its supply chain management service business in December 2019, which primarily consisted of loan recommendation services and distribution services.
For the three months ended March 31, 2022, the Company provided $575,151 revenue from supply chain management services to third party customers compared with $145,775 to the third party customers for the same period ended March 31 2021.
Cost of revenue
Our cost of revenue primarily includes the cost of revenue associated with commodity product sales and the cost of revenue associated with management services of the supply chain. Total cost of revenue increased by $18,182,535or 62% from $29,419,643 for the three months ended March 31, 2021 to $47,602,178 for the three months ended March 31, 2022, due to the increase in the cost of revenue associated with commodity product sales in line with our business growth and expansion. We expect the cost of revenue will fluctuated in the next few months as affected by the COVID-19.
Cost of revenue associated with commodity trading
ResultsThe cost of Operationsrevenue primarily consists of purchase costs of non-ferrous metal products.
For the three months ended March 31, 2022, the Company purchased non-ferrous metal products of $47,590,576 from twelve third party suppliers.
For the three months ended March 31, 2021, the Company purchased non-ferrous metal products of $20,386,181 from five related party suppliers and $9,032,412 from three third party suppliers.
Selling, general, and administrative expenses
Selling, general and administrative expenses increased from $1,570,379 for the three months ended March 31, 2021 to $2,247,707 for the three months ended March 31, 2022, representing an increase of $677,328, or 43%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expenses, amortizations of intangible assets and convertible notes, professional service fees and finance offering related fees. The increase was mainly attributable to: (i) amortization of intangible assets of $1,029,186; and (ii) amortization of convertible notes of $111,000 for the three months ended March 31, 2022, while there was no such issuance for the three months ended March 31, 2021.
Share-based payment for service
For the three months ended March 31, 2021, the share-based payment for service was $1,695,042. 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 engaged agent who was engaged to complete the warrant waiver and exercise agreements discussed in Note 7.
agreements. The Company applied Black-Scholes model and determined the fair value of the warrants to be $1.7 million.$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 5 years, and volatility of 71.57%.
The Company’s quarterly financial statements ended March 31, 2021 contained an error related to above share-based payment for service. Management has determined such error was qualitatively immaterial and the correction was made during this quarter. No restatement to previous issued interim financial statements was deemed necessary.
The following table illustrates the correction of the error had it been shown in the statement of operations in the interim financial statement in Form 10-Q filing on June 26, 2021:
| March 31, 2021 | ||||
| Income from operations as reported | $ | 557,235 | ||
| Effect on share-based payment for service | (1,695,042 | ) | ||
| Loss from operations as revised | $ | (1,137,807 | ) | |
| March 31, 2021 | ||||
| Net income as reported | $ | 156,766 | ||
| Effect on share-based payment for service | (1,695,042 | ) | ||
| Net loss as revised | $ | (1,538,276 | ) | |
| March 31, 2021 | ||||
| EPS as reported | $ | 0.002 | ||
| Effect on EPS | (0.02 | ) | ||
| EPS as revised | $ | (0.02 | ) | |
The Company included $1,695,042 as share-based payment for services on the Condensed consolidated statement of operations for the six months ended June 30, 2021.
Three Months Ended June 30, 2021 as Compared to Three Months Ended June 30, 2020
| For the Three Months Ended June 30, | Change | |||||||||||||||
| 2021 | 2020 | Amount | % | |||||||||||||
| Revenues | ||||||||||||||||
| - Sales of commodity products – related parties | $ | 1,523,616 | $ | 1,563,669 | $ | (40,053 | ) | (3 | )% | |||||||
| - Sales of commodity products – third parties | 57,989,381 | - | 57,989,381 | 100 | % | |||||||||||
| - Supply chain management services – third parties | 326,650 | 351,793 | (25,143 | ) | (7 | )% | ||||||||||
| - Supply chain management services – related parties | - | 26,949 | (26,949 | ) | (100 | )% | ||||||||||
| Total Revenue | 59,839,647 | 1,942,411 | 57,897,236 | 2981 | % | |||||||||||
| Cost of revenue | ||||||||||||||||
| - Commodity product sales – related parties | (1,531,336 | ) | (200,679 | ) | (1,330,657 | ) | 663 | % | ||||||||
| - Commodity product sales – third parties | (57,932,603 | ) | (1,369,669 | ) | (56,562,934 | ) | 4130 | % | ||||||||
| - Supply chain management services – third parties | (2,592 | ) | (7,633 | ) | 5,041 | (66 | )% | |||||||||
| - Supply chain management services – related parties | - | - | ||||||||||||||
| Total cost of revenue | (59,466,531 | ) | (1,577,981 | ) | (57,888,550 | ) | 3669 | % | ||||||||
| Gross profit | 373,116 | 364,430 | 8,686 | 2 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general, and administrative expenses | (2,054,354 | ) | (439,128 | ) | (1,615,226 | ) | 368 | % | ||||||||
| Total operating cost and expenses | (2,054,354 | ) | (439,128 | ) | (1,615,226 | ) | 368 | % | ||||||||
| Other income (expenses), net | ||||||||||||||||
| Interest income | 2,946,236 | 1,804,743 | 1,141,493 | 63 | % | |||||||||||
| Interest expenses | (155,825 | ) | (31,610 | ) | (124,215 | ) | 393 | % | ||||||||
| Amortization of beneficial conversion feature relating to issuance of convertible notes | - | (3,400,000 | ) | 3,400,000 | (100 | )% | ||||||||||
| Amortization of relative fair value of warrants relating to issuance of convertible notes | (3,060,000 | ) | 3,060,000 | (100 | )% | |||||||||||
| Other income (expense), net | (379,924 | ) | - | (379,924 | ) | 100 | % | |||||||||
| Total other income (expenses), net | 2,410,487 | (4,686,867 | ) | 7,097,354 | (151 | )% | ||||||||||
| Net Income (Loss) From Continuing Operation Before Income Taxes | 729,249 | (4,761,565 | ) | 5,490,814 | (115 | )% | ||||||||||
| Income tax expenses | (371,393 | ) | (408,829 | ) | 37,436 | (9 | )% | |||||||||
| Net Income (Loss) From Continuing Operation | 357,856 | (5,170,394 | ) | 5,528,250 | (107 | )% | ||||||||||
| Net Loss from Discontinuing Operation | - | (292,091 | ) | 292,091 | 100 | % | ||||||||||
| Net Income (Loss) | $ | 357,856 | $ | (5,462,485 | ) | $ | 5,820,341 | (107 | )% | |||||||
Revenue
For the three months ended June 30, 2021, we generate revenue from two sources, including (1) revenue from sales of commodity products, and (2) revenue from supply chain management services. Total revenue increased by $57,897,236 or 2981%, from $1,942,411 for the three months ended June 30, 2020 to $59,839,647 for the three months ended June 30, 2021, among which revenue from commodity trading and supply chain management accounted for 99.5% and 0.5% of our total revenue for the three months ended June 30, 2021. For the three months ended June 30, 2020, revenue from commodity trading and supply chain management accounted for 80.5% and 19.5% of our total revenue for the three months ended June 30, 2020.March 31, 2022, no such expenses incurred.
The increase is mainly due to the prosperous bulk market all over the world. An obvious increase in commodity price and growing demand drive more frequent transactions occurred during the first half of 2021. Since 2021, the Company put more emphasis on its business in Hainan province which was able to obtain a competitive and supportive policy and generates more revenue from customers in the Hainan region. The Company made efforts to explore competitive - vendors in Hainan province to meet the demands of lower transportation cost and time cost, meanwhile our long term positive image in the commodity products industry enhanced our comprehensive competitive support from local trade associates.Interest income
For the three months ended June 30, 2021 and 2020, the Company sold non-ferrous metals to two customers at fixed prices, and earned revenues when the product ownership was transferred to its customers. The Company earned revenues of $59,512,997 from sales of commodity products for the three months ended June 30, 2021, among which, $1,523,616 generated from the related party, compared with $1,563,669 from sales of commodity products for the same period in 2020.
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 June 30, 2020, the Company provided commodity distribution services to customers.
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 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 June 30, 2021, the Company earned commodity distribution commission fees of $326,650 from eight third-party customers while $351,793 from two third-party customers and $26,949 from one related party customer for the same period in 2020.
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 increased by $57,888,550 or 3669% from $1,557,981 for the three months ended June 30, 2020 to $59,466,531 for the three months ended June 30, 2021, primarily due to an increase of $57,989,381 in cost of revenue associated with commodity product sales from the third party. The cost of revenue increased is in line with the growth of revenue.
Cost of revenue associated with commodity trading
Cost of revenue primarily consists of purchase costs of non-ferrous metal products. For the three months ended June 30, 2021, the Company purchased non-ferrous metal products of $57,932,603 from fifteen third party vendors and $1,531,336 from five related party vendors compared with $1,369,669 from one third party vendor and $200,679 from one related party vendor for the three months ended June 30, 2020.
Selling, general, and administrative expenses
Selling, general and administrative expenses increased from $439,128 for the three months ended June 30, 2020 to $ 2,054,354 for the three months ended June 30, 2021, representing an increase of $1,615,226 or 368%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expense, amortizations of intangible assets and convertible notes, professional service fees and finance offering related fees. The increase was mainly attributable to 1) amortization of intangible assets of $1,011,933 and, 2) amortization of convertible notes of $122,500 for the three months ended June 30,2021 while no such issuance for the three months ended June 30, 2020.
Interest income
Interest income was primarily generated from loans made to third parties and related parties. For the three months ended June 30, 2020,March 31, 2022, interest income was $2,946,236,$4,390,341 representing an increase of $1,141,493,$2,291,484, or 63%109% from $1,804,743$2,098,857 for the three months ended June 30, 2020.March 31, 2021. The increase was primarily due to loans made to Shenzhen Xinsuniaoforthird party vendors for the three months ended June 30, 2020 to $59,504,874 made to additional 13 vendor customers, among which, $2,010,859March 31, 2022. The increase in interest income is in accordance with the increase in sales of commodity products. For the three months ended March 31, 2022, $717,485 was attributed to relaterelated party and $941,330$3,672,062 was generated from third party vendors.
Amortization of relative fair value of warrants relating to service provider
For the three months ended June 30, 2020, the item represented the full amortization of beneficial conversion feature of $3.4 million and amortization of relative fair value of warrants of $3.06 million relating to the convertible notes which was exercised in May 2020.
For the three months ended June 30, 2021, no such expenses incurred.
Net loss from continuing operation
As a result of the foregoing, net loss for the three months ended June 30, 2021 was $357,856, representing an increase of $5,528,250 from net loss of $5,170,394 for the three months ended June 30, 2020.
Net loss from discontinued operations
During the three months ended June 30, 2020, the net loss from discontinued operations was $292,091 from discontinued operations of used luxurious car leasing business.
Six Months Ended June 30, 2021 as Compared to Six Months Ended June 30, 2020
| For the Six Months Ended June 30, | Change | |||||||||||||||
| 2021 | 2020 | Amount | % | |||||||||||||
| Revenues | ||||||||||||||||
| - Sales of commodity products – related parties | $ | 21,926,631 | $ | 2,617,301 | $ | 19,309,330 | 738 | % | ||||||||
| - Sales of commodity products – third parties | 67,022,848 | - | 67,022,848 | 100 | % | |||||||||||
| - Supply chain management services – third parties | 472,425 | 460,630 | 11,795 | 3 | % | |||||||||||
| - Supply chain management services – related parties | - | 70,596 | (70,596 | ) | (100 | )% | ||||||||||
| Total Revenue | 89,421,904 | 3,148,527 | 86,273,377 | 2740 | % | |||||||||||
| Cost of revenue | ||||||||||||||||
| - Commodity product sales – related parties | (66,965,015 | ) | (1,369,669 | ) | (65,595,346 | ) | 4789 | % | ||||||||
| - Commodity product sales – third parties | (21,917,517 | ) | (1,256,218 | ) | (20,661,299 | ) | 1645 | % | ||||||||
| - Supply chain management services – third parties | (3,642 | ) | (7,954 | ) | 4,312 | (54 | )% | |||||||||
| - Supply chain management services – related parties | - | - | ||||||||||||||
| Total cost of revenue | (88,886,174 | ) | (2,633,841 | ) | (86,252,333 | ) | 3275 | % | ||||||||
| Gross profit | 535,730 | 514,686 | 21,044 | 4 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general, and administrative expenses | (3,624,733 | ) | (740,825 | ) | (2,883,908 | ) | 389 | % | ||||||||
| Impairment on leasing business assets | - | - | ||||||||||||||
| Total operating cost and expenses | (3,624,733 | ) | (740,825 | ) | (2,883,908 | ) | 389 | % | ||||||||
| Other income (expenses), net | ||||||||||||||||
| Interest income | 5,045,093 | 1,884,923 | 3,160,170 | 168 | % | |||||||||||
| Interest expenses | (283,248 | ) | (54,480 | ) | (228,768 | ) | 420 | % | ||||||||
| Amortization of beneficial conversion feature relating to issuance of convertible notes | - | (3,400,000 | ) | 3,400,000 | (100 | )% | ||||||||||
| Share-based payment for service | (1,695,042 | ) | - | (1,695,042 | ) | 100 | % | |||||||||
| Amortization of relative fair value of warrants relating to issuance of convertible notes | - | (3,060,000 | ) | 3,060,000 | (100 | )% | ||||||||||
| Other income (expense), net | (386,358 | ) | - | (386,358 | ) | 100 | % | |||||||||
| Total other expenses, net | 2,680,445 | (4,629,557 | ) | 7,310,002 | (158 | )% | ||||||||||
| Loss Before Income Taxes | (408,558 | ) | (4,855,696 | ) | 4,447,138 | (92 | )% | |||||||||
| Income tax expenses | (771,862 | )) | (408,829 | ) | (363,033 | ) | 89 | % | ||||||||
| Net income (Loss) From Continuing Operation | (1,180,420 | ) | (5,264,525 | ) | 4,084,105 | (78 | )% | |||||||||
| %% | ||||||||||||||||
| Net Loss From Discontinuing Operation | - | (552,445 | ) | 552,445 | (100 | )% | ||||||||||
Net Income (Loss) | $ | (1,180,420 | ) | $ | (5,816,970 | ) | $ | 4,636,550 | (80 | )% | ||||||
Revenue
For the six months ended June 30, 2021, 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 increased by $86,273,377 or 2740%, from $3,148,527 for the six months ended June 30, 2020 to $89,421,904 for the six months ended June 30, 2021, among which revenue from commodity trading, supply chain management and chain management services for 99.47% and 0.53%, respectively, of our total revenue for the six months ended June 30, 2021. The increase is mainly due to the prosperous bulk market all over the world. An obvious increase in commodity price and growing demand drive more frequent transactions occurred during the first half of 2021. Since 2021, the Company put more emphasis on its business in Hainan which was able to obtain a competitive and supportive policy and generates more revenue from customers in the Hainan region. The Company made efforts to explore competitive upstream vendors in Hainan to meet the demands of lower transportation cost and time cost, meanwhile our long term positive image in the commodity products industry enhanced our comprehensive competitive support from local trade associates.
For the six months ended June 30, 2021, the Company sold non-ferrous metals to two related party customers at fixed prices, and earned revenues when the product ownership was transferred to its customers. The Company earned revenues of $88,949, 479 from sales of commodity products compared with $2,617,301 for the same period in 2020.
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 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 six months ended June 30, 2021, the Company earned commodity distribution commission fees of $472,425 from third party vendors compared with commission fees of $460,630 from three third-party customers and distribution service fees of $70,596 from one related party customer for the six months ended in 2020.
Cost of revenue
Our cost of revenue primarily include cost of revenue associated with commodity product sales, cost of revenue associated with management services of supply chain and cost of operating lease. Total cost of revenue increased by $86,252,333 or 3275% from $2,633,841 for the six months ended June 30, 2020 to $88,886,174 for the six months ended June 30, 2021, primarily due to an increase of $86,256,645 in cost of revenue associated with commodity product sales. The cost of revenue increased is accordance to the increase in sales.
Cost of revenue associated with commodity trading
Cost of revenue primarily consists of purchase costs of non-ferrous metal products.
For the six months ended June 30, 2021, the Company purchased non-ferrous metal products of $67,681,124 from fifteen third party vendor and $21,205,050 from five related party vendor.
For the six months ended June 30, 2020, the Company purchased non-ferrous metal products of $1,360,304 from one third party vendor and $1,256,218 from one related party vendor.
Selling, general, and administrative expenses
Selling, general and administrative expenses increased from $740,825 for the six months ended June 30, 2020 to $3,624,733 for the six months ended June 30, 2021, representing an increase of $2,883,908, or 389%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expense, amortizations of intangible assets and convertible notes, professional service fees and finance offering related fees. The increase was mainly attributable to 1) amortization of intangible assets of $1,895,871 and, 2) amortization of convertible notes of $163,333 for the six months ended June 30, 2021 while no such issuance for the three months ended June 30, 2020, 3) professional fee increased from $508,646 to $768,488
Interest income
Interest income was primarily generated from loans made to third parties and related parties. For the six months ended June 30, 2021, interest income was $5,045,903 representing an increase of $3,160,170, or 168% from $1,884,923 for the six months ended June 30, 2020. The increase was primarily due to loans made to Shenzhen Xinsuniao for the three months ended June 30, 2020 to $59,504,874 made to additional 13 vendor customers, among which, $3,618,905 was attributed to relate party and $1,426,188 was generated from third party vendors.
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 million. 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 5 years, and volatility of 71.57% for the six months ended June 30, 2021.
For the six months ended June 30, 2020, no such expenses incurred.
Amortization of beneficial conversion feature and relative fair value of warrants relating to issuance of convertible promissory notes
For the sixthree months ended June 30, 2020,March 31, 2022, the item represented the full amortization of the beneficial conversion feature of $3.4 million$213,367 of the three convertible promissory notes issued on January 6, 2021, March 4, 2021 and amortization of relative fair value of warrants of $3.06 million relating to the convertible notes which was exercised in May 2020.October 4, 2021.
For the sixthree months ended June 30,March 31, 2021, no such expenses incurred.
Net loss from continuing operationincome (loss)
As a result of the foregoing, net lossincome for the sixthree months ended June 30, 2021March 31, 2022 was $1,180,420,$1,593,857, representing an increase of $4,084,105$3,132,133 from the net loss of $5,264,525$1,538,276 for the sixthree months ended June 30, 2020.March 31, 2021.
Net loss from discontinued operations
During the six months ended June 30, 2020, the net loss from discontinued operations was $552,445 from discontinued operations of used luxurious car leasing business.
For details of discontinued operations, please refer to Note11.
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.offerings.
As reflected in the accompanying unaudited condensed consolidated financial statements, for the three months ended March 31, 2022, the Company incurred net lossreported cash inflows of $1,180,420 and cash outflow of $3,789,382 for the six months ended June 30, 2021.$3,752,768 from operating activities. As of June 30, 2021,March 31, 2022, the Company has positive working capital of $60approximately $158 million.
During the sixthree months ended June 30, 2021,March 31, 2022, the Company entered into additional private placement agreements with certain private investors and issued 15,000,00065,000,000 shares of common stock at $1.63$0.7 per share for $24,450,000, sold unsecured senior convertible promissory notes (“Notes”) in the aggregate principal amount of $4,990,000 and also sold to certain investor and issued 1,353,468 shares for aggregate gross proceeds of $2.62 million.$45,500,000.
The total gross proceeds from these transactions were $31.58 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.
Liquidity
Statement of Cash Flows
As reflected in
The following table sets forth a summary of our cash flows. For the accompanying unaudited condensed consolidated financial statements,three months ended March 31, 2022 and 2021, respectively:
| For the three months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net Cash Provided by/(used in) Operating Activities | $ | 3,752,768 | $ | (4,215,515 | ) | |||
| Net Cash Used in Investing Activities | (50,003,288 | ) | (25,060,192 | ) | ||||
| Net Cash Provided by Financing Activities | 45,500,000 | 32,154,582 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 13,794 | 57,113 | ||||||
| Net (decrease)/increase in cash and cash equivalents | (736,726 | ) | 2,935,988 | |||||
| Cash at beginning of period | 4,311,068 | 2,700,013 | ||||||
| $ | 3,574,342 | $ | 5,636,001 | |||||
Net Cash Provided by/(Used in) Operating Activities
During the three months ended March 31, 2022, we had a cash inflow from operating activities of $3,752,768, an increase of $7,968,283 from a cash outflow of $4,215,515 for the sixthree months ended June 30, 2020,March 31, 2021. We incurred a net profit for the Company incurredthree months ended March 31, 2022 of $1,593,857, an increase of $3,132,133 from the three months ended March 31, 2021, during which we recorded a net loss of $1.18 million,$1,538,276.
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 include amortization of intangible assets of $1,029,186 and amortization of discount on convertible promissory notes of $111,000, amortization of beneficial conversion feature of convertible promissory notes of $213,367, accrual convertible interest expense of $93,285, and monitoring fee relating to convertible promissory notes of $69,685. |
| ● | An increase of $1,900,456 of advances from customers due to a purchase payment in advance to store goods recent competitive market. |
| ● | A decrease of $1,891,842 due from related parties due to a prepayment to third party for commodity purchase. |
Net Cash Used in Investing Activities
Net cash used in investing activities for the three months ended March 31, 2022 was $50,003,288 as compared to net cash used in investing activities of $25,060,192 for the three months ended March 31, 2021.
The cash used in investing activities for the three months ended March 31, 2022 was for the loans disbursed to third parties of $60,177,853 and reportedcollected loans from related parties of $11,066,822.
The cash outflowsused in investing activities for the three months ended March 31, 2021 was for the loans disbursed to third parties and related parties of $3,789,382 from operating activities. As of June 30, 2020,$1,307,835 and $18,662,034, respectively. During the three months ended March 31, 2021, the Company had cash balance of $6.9purchased software copyright for $5 million. These factors caused concern as to the Company’s liquidity as of June 30, 2021.
Net Cash Provided by Financing Activities
During the sixthree months ended June 30, 2021,March 31, 2022, the Company entered into additional private placement agreements with certain private investors and issued 15,000,00065,000,000 shares of common stock at $1.63$0.7 per share for $24,450,000 sold unsecured senior convertible promissory notes (“Notes”) in the aggregate principal amount of $4,990,000 and also sold to certain investor and issued 1,353,468 shares for totally $2.62 million collected.$45,500,000.
Total equity financing from this transaction was $31.58 million. The Company expects to useDuring the proceeds from this equity financing as working capital to expand its commodity trading business.
Based on above financing 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 sixthree months ended June 30, 2021 and 2020, respectively:
| For the six months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net Cash Used in Operating Activities | $ | (3,789,382 | ) | $ | (2,740,074 | ) | ||
| Net Cash Used in Investing Activities | (15,810,972 | ) | (78,559,027 | ) | ||||
| Net Cash Provided by Financing Activities | 23,096,801 | 86,621,770 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 700,055 | 381,294 | ||||||
| Net increase (decrease) in cash and cash equivalents | 4,196,502 | (959,089 | ) | |||||
| Cash at beginning of period | 2,700,013 | 2,446,683 | ||||||
| Cash at end of period | $ | 6,896,515 | $ | 1,487,594 | ||||
| Less: cash from discontinued operations | - | 84 | ||||||
| $ | 6,896,515 | $ | 1,487,510 | |||||
Net Cash Used in Operating Activities
During the six months ended June 30, 2021, we had a cash outflow from operating activities of $3,789,382, a decrease of $1,049,308 from a cash outflow of $2,740,074 for the six months ended June 30, 2020. We incurred a net loss for the six months ended June 30, 2021 of $1,180,420, an increase of $4,084,105 from the six months ended June 30, 2020, during which we recorded a net loss from continuing operation of $5,364,525. For the six months ended June 30, 2020, we had a cash outflow of $2,740,074 from continuing operation and inflow of $19,213 from discontinuing operation.
In addition to the change in profitability, the decrease in net cash used in operating activities was the result of several factors, including: (1) Non cash effects adjustments include amortization of intangible assets of $1,895,871 and convertible promissory notes of $163,333, amortization of $1.69 fair value of warrants relating to service provide rand accrual convertible interest expense of $199,093 against decrease of $3.4 million amortization of beneficial conversion feature relating to issuance of convertible notes and 3.06 million of amortization of relative fair value of warrants relating to issuance of convertible notes; (2) A decrease of $2,264,789 of prepayments due to a purchase payment in advance to store goods recent competitive market;(3) A decrease of $5,217,724 of due to related party for commodity purchase.
Net Cash Used in Investing Activities
Net cash used in investing activities for the six months ended June 30, 2021 was $15,810,972 as compared to net cash used in investing activities of $78,559,027 from continuing operations for the six months ended June 30, 2020.
The cash used in investing activities for the six months ended June 30, 2021 was for the loans disbursed to third parties of $31,687,476 and collected loans from related partis of $36,512,638. During the six months ended June 30, 2021, the Company purchased software copyright for $5.1 million.
The cash used in investing activities for the six months ended June 30, 2020 was for the loans disbursed to third parties of $78,559,027 used in investing activities from continuing operations.
Net Cash Provided by Financing Activities
During the six months ended June 30,March 31, 2021, the cash provided by financing activities was mainly attributable to borrowings from thirdrelated parties of $1,993,828,$1,196,696, cash raised of $ 24,450,000$18,500,000 from certain private placements by the issuance of 15,000,00024,450,000 shares of common stocks, cash raised of $2,192,988$2,192,989 from a registered direct offering by issuance of 1,353,468 shares of common stocks, cash raised of $4,500,000 from issuance of unsecured senior convertible promissory notes in the aggregate principal amount of $4,990,000. The Company repaid borrowing to the third partiesparty of $9,496,586 and related parties of $550,930 respectively.$185,103.
During the six months ended June 30, 2020, the cash provided by financing activities was mainly attributable to borrowings from related parties of $1,121,770, and cash raised of $13,500,000 from a private placements by issuance of 15,000,000 shares of common stocks, cash raised of $66,000,000 from issuance of unsecured senior convertible promissory notes in the aggregate principal amount of $30,000,000, and exercise of accompanied warrants to purchase 20,000,000 shares of common stock at an exercise price of $1.80.
Impact of COVID-19
An outbreak of respiratory illness caused by a novel coronavirus, namely COVID-19, spread in early 2020. On March 11, 2020, the WHO declared COVID-19 outbreak a pandemic. The outbreak of COVID-19 has endangered the health of many people in China, resulting in numerous confirmed cases and deaths and significantly disrupted travels and local economies in and outside of China. The PRC Government has adopted a series of measures nationwide, including locking down certain cities in the PRC, restrictions prohibiting companies from resuming work, traffic control, travel bans, management and restrictions over activities at new and existing construction sites. In recent months, the PRC government implemented a widespread lockdown in Shanghai and other cities, which temporarily adversely affected our business operating for about two weeks primarily attributable to the closure of our warehouse in Shanghai due to restrictive policies.
The occurrence of any of the above events may adversely affect our operations and results of operations. Furthermore, the COVID-19 pandemic may severely affect and restrict the level of economic activity in China as the governments in various regions we operate may impose regulatory or administrative measures to lock down affected areas and control the outbreak of the infectious disease, which together with the disruption of business in major industries may adversely affect the overall business sentiment and environment in China, which in turn may lead to slower overall economic growth in China and the world. In response to the COVID-19 pandemic, governments worldwide have imposed travel restrictions and/or lockdown to contain its transmission. As the pandemic continues spread worldwide, more countries may impose similar or more severe containment measures. The full extent of the future impact of COVID-19 on the Company’s plan of operations is uncertain. A prolonged outbreak could have a material adverse effect on the Company’s ability to identify and implement business opportunities or continue to effectuate its business plan. As of March 31, 2022, there has been no material impact on the Company’s financial position as a direct result of the pandemic. Management views this situation as transitory but cannot predict the length of time it may take for these disruptions to dissipate or if there will be a significant economic effect on the Company’s operations.
We continue to monitor the evolving effects of COVID-19 actively 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. We do not know when it will become practical to relax or eliminate some or all these measures. 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.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of June 30, 2021.March 31, 2022.
Contractual Obligations
As of June 30, 2021,March 31, 2022, the Company had onethree lease arrangementarrangements with antwo unrelated third partyparties with a monthly rental fee of approximately $7,713.$29,408. Two lease terms were within 38 months, which will be due in December 2024. The lease termremaining one was within 1224 months, which will be due in August 2021.2023. 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:
| Less than | ||||||||||||||||
| Total | 1 year | 1-2 years | Thereafter | |||||||||||||
| Contractual obligations: | ||||||||||||||||
| Operating lease (1) | $ | 929,658 | $ | 264,752 | $ | 342,728 | $ | 322,178 | ||||||||
| Total | $ | 929,658 | $ | 264,752 | $ | 342,728 | $ | 322,178 | ||||||||
| Less than | ||||||||||||||||
| Total | 1 year | 1-2 years | Thereafter | |||||||||||||
| Contractual obligations: | ||||||||||||||||
| Operating lease | $ | 15,425 | $ | 15,425 | $ | - | - | |||||||||
| Total | $ | 15,425 | $ | 15,425 | $ | - | $ | - | ||||||||
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.
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 June 30, 2021 (please refer to Item 9A. Controls and Procedures enclosed in Form 10-K filed on June 26, 2021).March 31, 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 March 31, 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 March 31, 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 conceivedwell-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 is based in part uponpartly 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’sour internal control over financial reporting during the quarter ended June 30, 2021, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange ActMarch 31, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the ordinary course of its business.None.
a) 2015 Derivative Action
On February 3, 2015, a purported shareholder Kiran Kodali filed a putative shareholder derivative complaint against the Company, alleging that the Company and its former officers and directors violated their fiduciary duties, grossly mismanaged the Company and were unjustly enriched based upon the transfer that was the subject of the Internal Review and other grounds substantially similar to those asserted in the class action complaints.
On July 16, 2019, the Company received a copy of the final order and judgment that the Court entered on July 11, 2019, approving the settlement set forth in the Stipulation. The Stipulation provides for dismissal of the Derivative Action as to the Company and the Individual Defendants, and the Company agrees to adopt or maintain certain corporate governance reforms for at least three years. The Stipulation also provides for attorneys’ fees and expenses to be paid by the Individual Defendants’ insurance carriers to plaintiffs’ counsel.
b) 2017 Arbitration with Sorghum
On December 21, 2017, the Company delivered notice (“Notice”) to Sorghum notifying Sorghum that certain recent actions of Sorghum constituted breaches of Sorghum’s covenants under the Exchange Agreement. Specifically, we believe that Sorghum is in breach of Section 6.9 (a and Section 6.11 (b of the Exchange Agreement which required Sorghum to use commercially reasonable efforts and to cooperate fully with the other parties to consummate the transactions contemplated by the Exchange Agreement and to make its directors, officers and employees available in connection with responding in a timely manner to SEC comments. According to the terms of the Exchange Agreement, the Company is entitled to terminate the Exchange Agreement if the breach is not cured within twenty (20 days after the Notice is provided to Sorghum.
On January 25, 2018, the Company filed an arbitration demand (“Arbitration Demand” with the American Arbitration Association (“AAA” against Sorghum in connection with Sorghum’s breach of the Exchange Agreement.
On July 30, 2018, Arbitrator entered a reasoned award, accepting the Company’s proposal for resolution, awarding the Company damages of $1,436,522 against Sorghum and denying Sorghum’s Counterclaim against the Company in its entirety with prejudice. Sorghum has sought to vacate the arbitration award by filing a petition to vacate the arbitration award in the Supreme Court for the State of New York, New York County. The Court heard the Company and Sorghum’s arguments on May 1, 2019, and entered an order vacating the arbitration award. The Company vigorously opposed and moved to confirm the arbitration award on May 6, 2019. On June 5, 2019, the Company filed a notice of appeal with the New York Supreme Court Appellate Division First Department. The appeal was scheduled to be mediated on November 20, 2019. On November 15, 2019, the Company withdrew its appeal filed June 5, 2019, upon the stipulation of the parties and accordingly, the arbitration award is deemed to be vacated.
c) 2018 Court Matter with Shanghai Nonobank Financial Information Service Co. Ltd.
On August 2, 2018, the Company became party to an action filed by Shanghai Nonobank Financial Information Service Co. Ltd. (“Plaintiff”) in the Supreme Court for the State of New York, New York County (“NY Supreme Court” (Index No. 653834/2018 (the “Action”). Plaintiff’s complaint seeks to recover approximately $3.5 million of Plaintiff’s funds that were allegedly required to be held in escrow in New York pursuant to an agreement by and between Plaintiff, Yang Jie and Yi Lin (the “Complaint”). Plaintiff has alleged that the funds were required to be held in escrow in a New York attorney trust account pending the alleged consummation of a merger between Plaintiff’s parent company and the Company. Plaintiff alleged two causes of action against the Company for fraud/fraudulent inducement and conversion. On August 30, 2018, the Company filed a motion to dismiss Plaintiff’s causes of action against the Company. The Court has scheduled oral arguments on the Company’s motion to dismiss for May 1, 2019.
On July 15, 2019, the Company received a copy of the decision and order the Court entered on July 12, 2019, granting the Company’s motion to dismiss the Complaint in its entirety as against the Company without prejudice, with costs and disbursements to the Company as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of the Company.
d) 2020 Court Matter with Harrison Fund
On April 6, 2020, the Company filed a law suit 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 of its investment from Harrison Fund. When the Company failed to obtain a response from Harrison Fund, it filed the 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.
ITEM 1A. RISK FACTORS
As of the date of this Report,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 June 4, 2021.March 16, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.Common stock issued pursuant to the conversion of convertible promissory notes
The Company settled convertible promissory notes of $200,000 on January 5, 2022, $175,000 on January 26, 2022, $175,000 on February 8, 2022, $200,000 on February 25, 2022, $375,000 on March 17, 2022, $500,000 on March 17, 2022 and $179,819 on March 18, 2022 respectively, and issued 644,662, 882,412, 943,701, 1,376,652, 2,581,222, 2,500,000 and 899,095 shares of the Company’s common stock on January 10, 2022, January 27, 2022, February 9, 2022, March 2, 2022, March 17, 2022, March 21, 2022, and March 22, 2022, respectively for the three months ended March 31, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| * | Previously filed |
| ** | Filed herewith |
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: | 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) | ||
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