UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ____________ to ____________
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As
of August 16, 2021,
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 | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Loans receivable from third parties | ||||||||
| Prepayments | ||||||||
| Due from related parties | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets | ||||||||
| Total noncurrent assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Advances from customers | ||||||||
| Third party loan payables | ||||||||
| Due to related parties | ||||||||
| Bank borrowings | ||||||||
| Income tax payable | ||||||||
| Convertible notes | ||||||||
| Acquisition payable | ||||||||
| Other current liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 12) | ||||||||
| Equity | ||||||||
| Common stock (par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | | $ | | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
1
TD HOLDINGS, INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Expressed in U.S. dollars, except for the number of shares)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| - Sales of commodity products – related parties | $ | $ | $ | $ | ||||||||||||
| - Sales of commodity products – third parties | ||||||||||||||||
| - Supply chain management services – related parties | ||||||||||||||||
| - Supply chain management services – third parties | ||||||||||||||||
| Total Revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| - Commodity product sales-related parties | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| - Commodity product sales-third parties | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| - Supply chain management services – related parties | - | |||||||||||||||
| - Supply chain management services – third parties | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total cost of revenue | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general, and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating cost and expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses), net | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Share-based payment for service | ( | ) | ||||||||||||||
| Amortization of beneficial conversion feature relating to issuance of convertible notes | ( | ) | ( | ) | ||||||||||||
| Amortization of relative fair value of warrants relating to issuance of convertible notes | ( | ) | ( | ) | ||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Total other income (expenses), net | ( | ) | ( | ) | ||||||||||||
| Net income (loss) from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) from continued operations, net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss from discontinued operations, net of tax | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Net loss attributable to non-controlling interests | ||||||||||||||||
| Net income (loss) attributable to TD Holdings, Inc.’s Stockholders | $ | ( | ) | ( | ) | ( | ) | |||||||||
| Comprehensive Income (Loss) | ||||||||||||||||
| Net income (loss) | $ | ( | ) | ( | ) | ( | ) | |||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Less: Total comprehensive income - attributable to non-controlling interests | ||||||||||||||||
| Comprehensive income (loss) attributable to TD Holdings, Inc. | $ | ( | ) | ( | ) | |||||||||||
| Income (Loss) per share - basic and diluted | ||||||||||||||||
| Continuing Operation- Income (loss) per share – Basic and diluted | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Continuing Operation- Income (loss) per share – Diluted | ( | ) | ||||||||||||||
| Discontinuing Operation-Net loss per share –Basic and diluted | $ | - | ( | ) | ( | ) | ||||||||||
| Weighted Average Shares Outstanding-Basic | ||||||||||||||||
| Weighted Average Shares Outstanding- Diluted | ||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
2
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in U.S. dollars, except for the number of shares)
| 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 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Issuance of common stocks in connection with private placements | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of common stocks in connection with exercise of convertible notes | ||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature relating to issuance of convertible notes | - | |||||||||||||||||||||||||||||||||||
| Relative fair value of warrants relating to issuance of convertible notes | ||||||||||||||||||||||||||||||||||||
| Issuance of common stocks in connection with exercise of warrants | ||||||||||||||||||||||||||||||||||||
| Collection of subscription fee | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance as at June 30, 2020 | | $ | | $ | | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Balance as at December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Issuance of common stocks in connection with private placements | ||||||||||||||||||||||||||||||||||||
| Issuance of common stocks pursuant to registered direct offering | ||||||||||||||||||||||||||||||||||||
| Issuance of common stocks pursuant to exercise of warrants | ( | ) | ||||||||||||||||||||||||||||||||||
Share-based payment for service | ||||||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | |||||||||||||||||||||||||||||||||||
| Balance as at June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
3
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in U.S. dollars, except for the number of shares)
| Common Stock | Additional paid-in | Accumulated | 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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of common stocks in connection with exercise of convertible notes | ||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature relating to issuance of convertible notes | - | |||||||||||||||||||||||||||||||||||
| Relative fair value of warrants relating to issuance of convertible notes | ||||||||||||||||||||||||||||||||||||
| Issuance of common stocks in connection with exercise of warrants | ||||||||||||||||||||||||||||||||||||
| Collection of subscription fee | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance as at June 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
Balance as at March 31, 2021 (Restated, See Note 2) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of common stocks in connection with exercise of warrants | ||||||||||||||||||||||||||||||||||||
| Net Income | - | - | - | - | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ||||||||||||||||||||||||||||||||||||
| Balance as at June 30, 2021 | | $ | $ | $ | ( | ) | $ | $ | $ | $ | | |||||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
4
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollar)
| For the Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | ( | ) | |||
| Less: Net income (loss) from discontinued operations | ( | ) | ||||||
| Net income (loss) from continuing operations | ( | ) | ||||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Amortization of intangible assets | ||||||||
| Depreciation of fixed assets | ||||||||
| Amortization of discount on convertible notes | ||||||||
| Amortization of right of use assets | ||||||||
| Amortization of beneficial conversion feature relating to issuance of convertible notes | ||||||||
| Amortization of relative fair value of warrants relating to issuance of convertible notes | ||||||||
| Share-based payment for service | ||||||||
| Standstill fee relating to convertible notes | ||||||||
| Interest expense for convertible notes | ||||||||
| Deferred tax liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Other current assets | ( | ) | ||||||
| Account receivables | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepayments | ( | ) | ( | ) | ||||
| Advances from customers | ||||||||
| Accounts payable | ||||||||
| Due to related parties | ( | ) | ( | ) | ||||
| Due from related parties | ( | ) | ||||||
| Income tax payable | ||||||||
| Other current liabilities | ( | ) | ||||||
| Lease liabilities | ( | ) | ||||||
| Net cash provided by (used in) operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities from discontinued operations | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of intangible assets | ( | ) | ||||||
| Purchases of fixed assets | ( | ) | ||||||
| Final payment of acquisition of a subsidiary | ( | ) | ||||||
| Payment made on loan to related parties | ( | ) | ||||||
| Payment made on loans to third parties | ( | ) | ( | ) | ||||
| Collection of loans from related parties | ||||||||
| Collection of loans from third parties | ||||||||
| Net cash used in investing activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash used in investing activities from discontinued operations | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from issuance of common stock under ATM transaction | ||||||||
| Proceeds from issuance of common stock under private placement transactions | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from issuance of convertible promissory notes | ||||||||
| Proceeds from borrowings from related parties | ||||||||
| Proceeds from borrowings from third parties | - | |||||||
| Repayments made on loans to related parties | ( | ) | ||||||
| Payments made on loans to third parties | ( | ) | ||||||
| Net cash provided by financing activities from continuing operations | ||||||||
| Net cash used in financing activities from discontinuing operations | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ||||||||
| Net increase/(decrease)in cash and cash equivalents | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | |||||||
| Less: Cash from discontinued operations | ||||||||
| Cash from continuing operations | ||||||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest expense | ||||||||
| Cash paid for income tax | $ | $ | ||||||
| Supplemental disclosure of Non-cash investing and financing activities | ||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
| Issuance of common stocks in connection with conversion of convertible notes | $ | $ | ||||||
| Issuance of common stocks in connection with private placements, net of issuance costs with proceeds collected in advance in November 2019 | $ | $ | ||||||
| Issuance of common stocks in connection with warrant cashless exercise in March 2021 | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
5
TD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
| 1. | ORGANIZATION AND BUSINESS DESCRIPTION |
The Company conducts business through Shanghai Jianchi Supply chain Co.,Ltd, 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 Techonology Co.,Ltd during the three months ended June 30, 2021.
Name |
Background | Ownership | ||
| 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, 2021 and for the six months ended June 30, 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 US 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, 2020 previously filed with the SEC on June 4, 2021.
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, 2021 and its unaudited condensed consolidated results of operations for the three months and six months ended June 30, 2021 and 2020, and its unaudited condensed consolidated cash flows for the six months ended June 30, 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.
6
Error Correction
On
March 4, 2021, the Company issued
The
Company applied Black-Scholes model and determined the fair value of the warrants to be $
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 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 | $ | |||
| Effect on share-based payment for service | ( | ) | ||
| Loss from operations as revised | $ | ) | ||
| Three months ended March 31, 2021 | ||||
| Net income as reported | $ | |||
| Effect on share-based payment for service | ( | ) | ||
| Net loss as revised | $ | ( | ) | |
| Three months ended March 31, 2021 | ||||
| EPS as reported | $ | |||
| Effect on EPS | ( | ) | ||
| EPS as revised | $ | ( | ) | |
The
Company included $
| ● | Use of estimates |
The preparation of these condensed consolidated financial statements in conformity with the US GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities on the date of these condensed consolidated financial statements and the reported amounts of revenues 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, actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined to be necessary.
7
| ● | Foreign currency |
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 Renminbi (“RMB”). The determination of functional currency is based on the criteria of ASC 830, Foreign Currency Matters (“ASC 830”). The Company uses the RMB as its reporting currency.
The financial statements of the Company and its Hong Kong subsidiary are translated from the functional currency to the reporting currency, RMB. Monetary assets and liabilities of the subsidiaries are translated into RMB using the exchange rate in effect at each balance sheet date. Income and expense items are translated 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.
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).
| (b) | Inventory |
Inventories of the Company are bulk commodities products, such as precious metals. Inventories are stated at the lower of cost or net realizable value. Costs of inventory are determined using the first-in first-out method. Adjustments to reduce the cost of inventories are made, if required, for decreases in sales prices, obsolescence or similar reductions in the estimated net realizable value.
We keep inventory for our direct sales model. Our inventory control policy requires us to monitor our inventory level and to manage obsolete inventory. Risk is passed to our customers (or to delivery service providers) upon the delivery of commodities to our customers. For a substantial majority of precious metal sold through our network, the whole transaction process takes from a few hours to a few days, thus our inventory risk is limited. For a small portion of our transactions under direct sales model, we hold inventories for repeating customers with relatively stable demands of large quantity based on our transaction data. We analyze historical sales data and days in inventory to establish inventory management plans. We monitor our real-time inventory volume and adjust our inventory management plans based on factors such as fluctuations in supply and prices, seasonality, and sales of a particular product.
| (c) | Convertible promissory notes |
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.
8
| (d) | Recent accounting pronouncement |
In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) “Financial Instruments - Credit Losses” (“ASC 326”): Measurement of Credit Losses on Financial Instruments” which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2019, the FASB issued ASU 2019-10 “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)” (“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 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.
| 3. | LOANS RECEIVABLE FROM THIRD PARTIES |
June
30, 2021 | December 31, 2020 | |||||||
| Loans receivable from third parties | $ | $ | ||||||
As
of June 30, 2021, the Company has fifteen loan agreements compared with four loan agreements on December 31, 2020. The Company provided
loans aggregating $
Interest income of $
As of June 30, 2021 and December 31,2020 there was no allowance recorded as the Company considers all of the loan receivable fully collectible.
9
| 4. | INTANGIBLE ASSETS |
| June 30, 2021 | December 31, 2020 | |||||||
| Customer relationships | $ | $ | ||||||
| Software copyright | ||||||||
| Total | ||||||||
| Less: accumulative amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
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
For
the six months ended June 30, 2021 and 2020, the Company amortized $
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 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total: | $ | |||
| 5. | INVENTORY |
June 30, 2021 | December 31, 2020 | |||||||
| Finished goods | $ | $ | ||||||
The balance represents a batch of precious product from one of subsidiary Hiannan Jianchi on June 30, 2021.
| 6. | CONVERTIBLE PROMISSORY NOTES |
| June
30, 2021 | December 31, 2020 | |||||||
| Convertible notes – principal | $ | $ | ||||||
| Convertible notes – discount | ( | ) | ||||||
| Convertible notes – interest | ||||||||
| Convertible notes, net | $ | $ | ||||||
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 $
The
above two Notes have a maturity date of 12 months with an interest rate of
10
During
the period that these Notes are outstanding, the Company will reserve from its authorized and unissued shares of common stock more than
Upon
evaluation, the Company determined that the Agreements contained embedded beneficial conversion features which met the definition of Debt
with Conversion and Other Options covered under the Accounting Standards Codification topic 470 (“ASC 470”). According
to ASC 470, an embedded beneficial conversion feature present in a convertible instrument shall be recognized separately at issuance
by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. Pursuant to the agreement,
the Company shall recognize embedded beneficial conversion features three months after commitment date of $
| 7. | CAPITAL TRANSACTIONS |
Common stock issued in private placements
On
January 7, 2021, the Company entered into certain securities purchase agreement with two investors, the Chairman and CEO of the Company,
Ouyang Renmei and another shareholder pursuant to which the Company agreed to sell an aggregate of
Common stock issued in registered direct offering
On
January 20, 2021, the Company entered into a securities purchase agreement, pursuant to which the Company agreed to sell to certain investor
an aggregate of
On
February 8, 2021, the Company entered into a securities purchase agreement, pursuant to which the Company agreed to sell to certain investor
an aggregate of
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 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 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.
On
March 10, 2021, the Company entered into certain waiver and warrant exercise agreements with some institutional investors, which modified
(a)
On
March 4, 2021, the Company issued
On April 27, 2021, the Company entered warrant exercise agreements
and received proceeds of $
11
Warrants
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 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( |
) | $ | |||||||||||||
| Balance of warrants outstanding and exercisable as of June 30, 2021 | $ | |||||||||||||||
| 8. | LOSS PER SHARE |
Basic earnings (loss) per share is computed by dividing the net profit or loss by the weighted average number of common shares outstanding during the period. Diluted income per share is calculated by dividing net income attributable to common shares by 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.
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 six months ended June 30, 2021 and 2020 respectively:
| For the Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net loss attributable to TD Holdings, Inc.’s Stockholders | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Shares Outstanding-Basic | ||||||||
| Net loss per share - basic and diluted | ||||||||
| Net loss per share from continuing operations – basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) per share from discontinued operations – basic and diluted | $ | $ | ( | ) | ||||
12
| For the Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net income (loss) attributable to TD Holdings, Inc.’s Stockholders | $ | $ | ( | ) | ||||
| Weighted Average Shares Outstanding-Basic | ||||||||
| Weighted Average Shares Outstanding-Diluted | ||||||||
| Net loss per share - basic and diluted | ||||||||
| Net income (loss) per share from continuing operations – basic | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) per share from continuing operations – diluted | $ | ( | ) | $ | ||||
| Net income (loss) per share from discontinued operations – basic and diluted | $ | $ | ( | ) | ||||
| 9. | INCOME TAXES |
Effective
January 1, 2008, the New Taxation Law of PRC stipulates that domestic enterprises and foreign invested enterprises (the “FIEs”)
are subject to a uniform tax rate of
The
Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties)
based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the six months ended June
30, 2021, 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, 2021 and December
31, 2020, the Company had deferred tax assets of $
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 six months ended June 30, 2021 and 2020, the Company had current
income tax expenses of $
The
Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The
first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more
likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
13
| 10. | 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”) |
||
| Guangzhou
Chengji Investment Development Co., Ltd. (“Guangzhou Chengji”) |
||
| Yunfeihu
International E-commerce Group Co., Ltd (“Yunfeihu”) |
||
| Shenzhen
Tongdow International Trade Co., Ltd. (“TD International Trade”) |
||
| Beijing
Tongdow E-commerce Co., Ltd. (“Beijing TD”) |
||
| Shanghai
Tongdow Supply Chain Management Co., Ltd. (“Shanghai TD”) |
||
| Guangdong
Tongdow Xinyi Cable New Material Co., Ltd. (“Guangdong TD”) |
||
| Yangzhou
Tongdow E-commerce Co., Ltd. (“Yangzhou TD”) |
||
| Tongdow
(Zhejiang) Supply Chain Management Co., Ltd. (“Zhejiang TD”) |
||
| Shenzhen Meifu Capital Co., Ltd. (“Shenzhen Meifu”) | ||
| Shenzhen Tiantian Haodian Technology Co., Ltd. (“TTHD”) | ||
| Guotao Deng | ||
| Hainan Tongdow International Trade Co.,Ltd.(“Hainan TD”) | ||
| Yunfeihu modern logistics Co.,Ltd (“Yunfeihu Logistics”) | ||
| Shenzhen Tongdow Jingu Investment Holding Co.,Ltd (“Shenzhen Jingu“) | ||
| Tongdow E-commerce Group Co.,Ltd (“TD E-commerce”) | ||
| Fujian Pan |
14
| 2) | Balances with related parties |
| - | Due from related parties |
As of June 30, 2021 and December 31, 2020, the balances with related parties were as follows:
| June 30, 2021 |
December 31, 2020 |
|||||||
| TD International Trade (i) | $ | $ | ||||||
| Yangzhou TD (i) | ||||||||
| Zhejiang TD (i) | ||||||||
| Beijing TD (ii) | ||||||||
| Yunfeihu (ii) | ||||||||
| Yunfeihu Logistics (ii) | ||||||||
| TD E-commerce (ii) | ||||||||
| Shenzhen Jingu (ii) | ||||||||
| Guangdong TD | - | |||||||
| TTHD (ii) | ||||||||
| Total due from related parties | $ | $ | ||||||
| (i) | The balance due from TD International Trade, Yangzhou TD and Zhejiang TD represented prepayments for commodity metal products. |
| (ii) | The balance due from Beijing TD represented loans provided to the related party. Both the principal and interest will be due in September 2021, with an interest rate of |
| The balance due from Yunfeihu Logistics represented loans provided to the related party. Both the principal and interest will be due in December 2021, with an interest rate of | |
| The balance due from Yunfeihu represented loans provided to the related party. Both the principal and interest will be due in December 2021, with an interest rate of | |
| The balance due from TD E-commerce represented loans provided to the related party. Both the principal and interest will be due in September 2021, with an interest rate of | |
| The balance due from Shenzhen Jingu represented loans provided to the related party. Both the principal and interest will be due in September 2021, with an interest rate of | |
| The balance due from Guangdong TD represented loans provided to the related party. Both the principal and interest will be due in December 2021, with an interest rate of | |
| The balance due from TTHD represented loans provided to the related party. Both the principal and interest will be due in December 2021, with an interest rate of |
| - | Due to related parties |
| June
30, 2021 | December 31, 2020 | |||||||
| Guangzhou Chengji (1) | $ | $ | ||||||
| Yunfeihu (2) | ||||||||
| Guangdong TD (2) | ||||||||
| Shenzhen Meifu (2) | ||||||||
| Beijing TD (2) | ||||||||
| Other related parties | ||||||||
| Total due to related parties | $ | $ | ||||||
| (1) | The balance due to Guangzhou Chengji represents loan principal and interest due to the related parties. As of June 30, 2021 and December 31 2020, the Company borrowed loans of $ |
| (2) | The balance due to Yunfeihu, Guangdong TD, Shenzhen Meifu and Beijing TD represents the advance from these four related parties for supply chain management services. |
15
| 3) | Transactions with related parties |
For the three and six months ended June 30, 2021, the Company generated revenues from below related party customers:
| 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 | $ | $ | $ | $ | ||||||||||||
| Yangzhou TD | ||||||||||||||||
| TD International Trade | ||||||||||||||||
| Revenue from supply chain management services | ||||||||||||||||
| Yunfeihu | ||||||||||||||||
| Total revenues generated from related parties | $ | $ | $ | $ | ||||||||||||
| - | Purchases from a related party |
For the six months ended June 30, 2021 and 2020, the Company purchased commodity products from below related party vendors:
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Purchase of commodity products | ||||||||||||||||
| Yunfeihu | $ | $ | $ | $ | ||||||||||||
| Zhejiang TD | ||||||||||||||||
| Hainan TD | ||||||||||||||||
| TD International Trade | ||||||||||||||||
| Yangzhou TD | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
For
the three months and six months ended June 30, 2021, the Company purchased copyright software of $
| 11. | DISCONTINED OPERATION |
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.
16
The summarized operating results of the discontinued operation included in the Company’s unaudited interim condensed consolidated statements of operations consist of the following:
For the six months ended | ||||
| Revenues | $ | |||
| Cost of revenues | ||||
| Gross loss | ( | ) | ||
| Operating expenses | ||||
| Other expense | ||||
| Loss before income taxes | ( | ) | ||
| Income taxes | ||||
| Net loss from discontinued operations | $ | ( | ) | |
| 12. | COMMITMENTS AND CONTINGENCIES |
| 1) | Lease Commitments |
The Company leases offices which are classified as 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.
As
of June 30, 2021, the Company had one lease arrangement with an unrelated third party with a monthly rental fee of approximately
Lease
expenses for the three months ended June 30, 2021 and 2020 were $
| 2) | Contingencies |
| 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.
17
| 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,
| 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 $
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,
Due to the uncertainty arising from this pending legal proceeding, a full impairment has been applied against the Company’s investment in financial products.
18
| 13. | Risks and uncertainties |
| (1) | Credit risk |
Financial instruments that are potentially subject to credit risk consist principally of trade receivables and advances to suppliers. The Company believes the concentration of credit risk in its trade receivables and advances to suppliers is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. All of the Company’s cash is maintained with banks within the People’s Republic 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.
| (2) | Liquidity risk |
The Company is also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, the Company will turn to other financial institutions and the owners to obtain short-term funding to meet the liquidity shortage.
| (3) | Foreign currency risk |
The Company’s financial information is presented in 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 value of RMB, the gains and losses resulting from translation of financial statements of a foreign subsidiary will be significant affected.
| June 30, 2021 | December 31, 2020 | |||||||
| Balance sheet items, except for equity accounts | ||||||||
| For
the Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Items in the statements of operations, comprehensive loss and statements of cash flows | ||||||||
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.
19
| (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), 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. Similarly, if our customers experience adverse business consequences due to COVID-19, or any other pandemic, demand for our products and services could also be materially adversely affected in a rapid manner. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the localities in which we or our suppliers and customers operate within China.
While the potential economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. While it is too early to tell whether COVID-19 will have a material effect on our business over time, we continue to monitor the situation as it unfolds. The extent to which COVID-19 affects our results will depend on many factors and future developments, including new information about COVID-19 and any new government regulations which may emerge to contain the virus, among others.
| (5) | Risks related to industry |
The Company sells precious products to customers through our industrial relationship. Sales contracts are entered into with each individual customer. The Company is the principal under the precious metal direct sales model as the Company controls the products with the ability to direct the use of, and obtain substantially all the remaining benefits from the precious metal products before they are sold to its customers. The Company has a single performance obligation to sell metal products to the buyers. Revenue for precious metal trading under direct sales model is recognized at a point in time when the single performance obligation is satisfied when the products are delivered to the customer. We are under the risk of economic environment in general and specific to the precious metal industry and to China as well as changes to the existing governmental regulations.
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, our quarterly revenues and results of operations are likely to be affected by price fluctuation under macroeconomic circumstance 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.
| 14. | SUBSEQUENT EVENTS |
The Company settled convertible notes of $
On July 16, 2021, the Company issued
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
As of June 30, 2021, the Company had one business line which is commodities trading business.
Commodities trading business
The commodity trading business primarily involves purchasing non-ferrous metal product, such as aluminium 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 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 bulk non-ferrous commodity products, and from providing related supply chain management services in the PRC.
For the six months ended June 30, 2021, the Company recorded revenue of $88,949,479 from commodities trading business and $472,425 from commodity distributions 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 who need these metals in large quantity. The Company works with 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.
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 Company 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 also experiencing decreasing demand as a result of China’s overall economic slowdown. We expect competition in 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,
21
| ● | our ability to continue our growth as well as maintain profitability; |
| ● | preservation of our competitive position in commodities trading industry in China; |
| ● | our ability to implement our strategies and make timely and effective responses to competition and changes in customer preferences; and |
| ● | recruitment, training and retaining of qualified managerial and other personnel. |
Our business requires a significant amount of capital in large part due to needing to purchase bulk volume of commodities, and expand our business in existing markets and to additional markets where we currently do not have operations.
Recent Developments
The Company established several subsidiaries in Hainan province and Yangzhou to take advantage of beneficial local offshore supportive policies that encourage the development of more commercial transactions or high technology industries. The majority of sales of commodity products during the six months ended June 30, 3021 and three months ended June 30, 2021 were generated from the Hainan subsidiary.
Results of Operations
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 discussed in Note 7.
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 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 | ) | |
22
| 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 | )% | |||||||
23
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.
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.
| (1) | Revenue from sales of commodity products |
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.
| (2) | Revenue from supply chain management services |
In connection with the Company’s commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help metal and mineral suppliers sell their metal products, the Company launched its supply chain management service business in December 2019, which primarily consisted of loan recommendation services and commodity distribution services. For the three months ended 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.
24
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, interest income was $2,946,236, representing an increase of $1,141,493, or 63% from $1,804,743 for the three months ended June 30, 2020. The increase was primarily due to loans made to Shenzhen Xinsuniaofor the three months ended June 30, 2020 to $59,504,874 made to additional 13 vendor customers, among which, $2,010,859 was attributed to relate party and $941,330 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.
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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 | )% | ||||||
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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.
| (1) | Revenue from sales of commodity products |
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.
| (2) | Revenue from supply chain management services |
In connection with the Company’s commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help metal and mineral suppliers sell their metal products, the Company launched its supply chain management service business in December 2019, which primarily consisted of loan recommendation services and commodity distribution services.
Commodity distribution service fees
The Company utilizes its strong sales and marketing expertise and customer network to introduce customers to large metal and mineral suppliers, and facilitate the metal product sales between the suppliers and the customers. The Company merely acts as an agent in this type of transaction and earns a commission fee based on the percentage of 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.
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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 notes
For the six 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 six months ended June 30, 2021, no such expenses incurred.
Net loss from continuing operation
As a result of the foregoing, net loss for the six months ended June 30, 2021 was $1,180,420, representing an increase of $4,084,105 from net loss of $5,264,525 for the six months ended June 30, 2020.
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.
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Cash Flows and Capital Resources
We have financed our operations primarily through shareholder contributions, cash flow from operations, borrowings from third parties and related parties, and equity financing through private placement and public offerings of our securities.
As reflected in the accompanying unaudited condensed consolidated financial statements, the Company incurred net loss of $1,180,420 and cash outflow of $3,789,382 for the six months ended June 30, 2021. As of June 30, 2021, the Company positive working capital of $60 million.
During the six months ended June 30, 2021, the Company entered into additional private placement agreements with certain private investors and issued 15,000,000 shares of common stock at $1.63 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.
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
As reflected in the accompanying unaudited condensed consolidated financial statements, for the six months ended June 30, 2020, the Company incurred a net loss of $1.18 million, and reported cash outflows of $3,789,382 from operating activities. As of June 30, 2020, the Company had cash balance of $6.9 million. These factors caused concern as to the Company’s liquidity as of June 30, 2021.
During the six months ended June 30, 2021, the Company entered into additional private placement agreements with certain private investors and issued 15,000,000 shares of common stock at $1.63 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.
Total equity financing from this transaction was $31.58 million. The Company expects to use 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 six 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 | |||||
29
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, 2021, the cash provided by financing activities was mainly attributable to borrowings from third parties of $1,993,828, cash raised of $ 24,450,000 from certain private placements by issuance of 15,000,000 shares of common stocks, cash raised of $2,192,988 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 parties of $9,496,586 and related parties of $550,930 respectively.
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.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of June 30, 2021.
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 $7,713. 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. The lease commitment was as following table:
| 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of June 30, 2021 (please refer to Item 9A. Controls and Procedures enclosed in Form 10-K filed on June 26, 2021).
Limitations on the Effectiveness of Disclosure Controls. Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended 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 Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the ordinary course of its business.
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.
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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, 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| * | Previously filed |
| ** | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TD HOLDINGS, INC. | ||
| Date: August 16, 2021 | By: | /s/ Renmei Ouyang |
| Name: | Renmei Ouyang | |
| Title: | Chief
Executive Officer | |
| By: | /s/ Tianshi (Stanley) Yang | |
| Name: | Tianshi (Stanley) Yang | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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