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GD Culture Group(GDC) - 2018 Q4 - Annual Report
GDCGD Culture Group(GDC)2019-04-01 20:06

Business Combinations and Acquisitions - TMSR Holding Company Limited completed a business combination with JM Global, resulting in the issuance of 8,995,428 shares of common stock to the sellers [289]. - The company acquired Wuhan HOST Coating Materials Co., Ltd. for a total consideration of 11.2million,whichincluded11.2 million, which included 5.2 million in cash and 6.0millioninstock[292].−TheacquisitionofRongHaiElectricPowerFuelCo.,Ltd.involvedissuing4,630,000sharesofcommonstockinexchangeforcontroloverthecompany[295].RevenueandSalesPerformance−Totalrevenuesdecreasedbyapproximately6.0 million in stock [292]. - The acquisition of Rong Hai Electric Power Fuel Co., Ltd. involved issuing 4,630,000 shares of common stock in exchange for control over the company [295]. Revenue and Sales Performance - Total revenues decreased by approximately 15.6 million, or 40.2%, to approximately 23.2millionfortheyearendedDecember31,2018,comparedtoapproximately23.2 million for the year ended December 31, 2018, compared to approximately 38.8 million for the year ended December 31, 2017 [305]. - Revenue from solid waste recycling systems and equipment decreased by approximately 3.3million,or17.93.3 million, or 17.9%, to approximately 15.3 million for the year ended December 31, 2018 [306]. - The number of solid waste recycling equipment sold decreased by 25 units, or 78.1%, from 32 units in 2017 to 7 units in 2018 [307]. - Average selling price of solid waste recycling equipment decreased by 63,772,or11.063,772, or 11.0%, from 582,357 in 2017 to 518,585in2018[307].−Coatingmaterialsrevenuereachedapproximately518,585 in 2018 [307]. - Coating materials revenue reached approximately 4.6 million, with 1,873,252 kilograms sold at an average price of approximately 2.46perkilogram[310].−Coalsalesamountedto11,775tonsatanaveragesellingpriceofapproximately2.46 per kilogram [310]. - Coal sales amounted to 11,775 tons at an average selling price of approximately 93.95 per ton after the acquisition of Rong Hai [310]. - Trading and others revenue decreased by approximately 17.9million,or89.217.9 million, or 89.2%, to approximately 2.2 million for the year ended December 31, 2018 [311]. - The company completed the sales of 3 units of solid waste recycling infrastructure systems with an average selling price of 3,889,419perunitin2018[309].−Revenuesfromtradingindustrialwastematerialsdecreasedbyapproximately90.03,889,419 per unit in 2018 [309]. - Revenues from trading industrial waste materials decreased by approximately 90.0%, from 13.2 million in 2017 to 1.3millionin2018,primarilyduetoreducedtradingvolume[326].FinancialPerformance−Grossprofitdecreasedbyapproximately1.3 million in 2018, primarily due to reduced trading volume [326]. Financial Performance - Gross profit decreased by approximately 15.0 million, or 76.8%, to approximately 4.5millionin2018,withgrossmargindroppingfrom50.44.5 million in 2018, with gross margin dropping from 50.4% in 2017 to 19.5% in 2018 [329]. - Operating income decreased by approximately 71.4%, from 7.4 million in 2017 to approximately 2.1 million in 2018, reflecting a decline in higher profit margin products [335]. - SG&A expenses increased by approximately 66.4%, from 1.8 million in 2017 to approximately 3.0millionin2018,drivenbyhigherprofessionalfeesrelatedtoacquisitions[331].−Netincomedecreasedbyapproximately3.0 million in 2018, driven by higher professional fees related to acquisitions [331]. - Net income decreased by approximately 2.8 million, or 65.6%, to approximately 1.4millionfortheyearendedDecember31,2018,comparedto1.4 million for the year ended December 31, 2018, compared to 4.2 million in 2017 [338]. Cash Flow and Liquidity - The company reported net cash used in operating activities of approximately 2.0millionfortheyearendedDecember31,2018,comparedtoapproximately2.0 million for the year ended December 31, 2018, compared to approximately 0.4 million for the previous year [365]. - The company generated approximately 1.5millionofnetincomefromoperationsduringtheyearendedDecember31,2018[365].−CashheldbythecompanyasofDecember31,2018,amountedto1.5 million of net income from operations during the year ended December 31, 2018 [365]. - Cash held by the company as of December 31, 2018, amounted to 726,737, an increase from 461,883asofDecember31,2017[364].−Thecompanyhadnetcashprovidedbyinvestingactivitiesof461,883 as of December 31, 2017 [364]. - The company had net cash provided by investing activities of 2,444,720 for the year ended December 31, 2018, compared to 21,566in2017[364].−Thecompanyexpectstocontinuegeneratingcashflowfromoperationsinthenexttwelvemonths[361].−Thecompanyanticipatesneedingadditionalcashresourcesinthefutureforinvestment,acquisition,orstrategiccooperationopportunities[361].OperationalChallengesandStrategicFocus−HubeiShengrongwasforcedtocloseitsexistingfacilityduetogovernmentpolicychanges,impactingitsproductioncapabilities[296].−ThecompanyisactivelyseekingtodisposeofHubeiShengrongwhileretainingitsresearchanddevelopmentcapabilitiesinsolidwasterecyclingsystems[296].−Managementhasnotedthatgovernmentregulationsonindustrialsolidwastedischargemaydirectlyimpactoperationsinthenearfuture[297].−Thecompanyisintheprocessofsearchingforsuitablevendorstomanufactureproductsin2019torecoverfromthedeclineinrevenue[306].CostandPricingDynamics−Costofsolidwasterecyclingsystemsandequipmentrevenueincreasedbyapproximately112.521,566 in 2017 [364]. - The company expects to continue generating cash flow from operations in the next twelve months [361]. - The company anticipates needing additional cash resources in the future for investment, acquisition, or strategic cooperation opportunities [361]. Operational Challenges and Strategic Focus - Hubei Shengrong was forced to close its existing facility due to government policy changes, impacting its production capabilities [296]. - The company is actively seeking to dispose of Hubei Shengrong while retaining its research and development capabilities in solid waste recycling systems [296]. - Management has noted that government regulations on industrial solid waste discharge may directly impact operations in the near future [297]. - The company is in the process of searching for suitable vendors to manufacture products in 2019 to recover from the decline in revenue [306]. Cost and Pricing Dynamics - Cost of solid waste recycling systems and equipment revenue increased by approximately 112.5%, from 6.0 million in 2017 to approximately 12.7millionin2018,duetohighersalesvolume[323].−Theaverageunitcostofcoatingmaterialssoldwasapproximately12.7 million in 2018, due to higher sales volume [323]. - The average unit cost of coating materials sold was approximately 1.88, with 1,873,252 kilograms sold in 2018, and coal sold at an average unit cost of approximately $91.31 for 11,775 tons [324]. Tax and Regulatory Environment - The effective tax rate decreased from 31.7% in 2017 to 26.2% in 2018, due to the acquisition of Wuhan Host and its "high-tech enterprise" tax status [337]. Risk Factors - Credit risk is significant, with accounts receivable being typically unsecured and derived from customer revenue [369]. - The company manages credit risk through prepayment requirements and regular monitoring of customer creditworthiness [370]. - Liquidity risk is present, with the company analyzing its financial position to ensure sufficient capital resources [372]. - Inflation risk may impact operating results if raw material costs increase without corresponding price adjustments [373]. - A majority of the company's assets and liabilities are denominated in RMB, exposing it to foreign currency risk [374].