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GD Culture Group(GDC) - 2019 Q2 - Quarterly Report
GDCGD Culture Group(GDC)2019-08-14 15:22

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[184]. - The acquisition of Wuhan HOST Coating Materials Co., Ltd. was finalized for a total consideration of 11.2million,including11.2 million, including 5.2 million in cash and 6.0millioninstock[187].TheacquisitionofRongHaiElectricPowerFuelCo.,Ltd.involvedissuing4,630,000sharesofcommonstockinexchangeforcontroloverthecompany[189].Thecompanyhasshifteditsfocustowardstheresearch,development,andsaleofsolidwasterecyclingsystemswhilepursuingcompatibleacquisitionopportunities[186].FinancialPerformanceTotalrevenuesincreasedbyapproximately6.0 million in stock[187]. - 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[189]. - The company has shifted its focus towards the research, development, and sale of solid waste recycling systems while pursuing compatible acquisition opportunities[186]. Financial Performance - Total revenues increased by approximately 3.5 million, or 37.2%, to approximately 12.8millionforthethreemonthsendedJune30,2019,comparedtoapproximately12.8 million for the three months ended June 30, 2019, compared to approximately 9.3 million for the same period in 2018[197]. - Revenues from solid waste recycling systems and equipment decreased by approximately 4.8million,or61.94.8 million, or 61.9%, to 3.0 million for the three months ended June 30, 2019, due to a decrease in orders[198]. - Revenues from coating and fuel materials increased significantly by 743.2% to 9.3millionforthethreemonthsendedJune30,2019,drivenbytheacquisitionofRongHai[196].Totalrevenuesincreasedbyapproximately9.3 million for the three months ended June 30, 2019, driven by the acquisition of Rong Hai[196]. - Total revenues increased by approximately 3.2 million, or 19.2%, to approximately 20.0millionforthesixmonthsendedJune30,2019,comparedtoapproximately20.0 million for the six months ended June 30, 2019, compared to approximately 16.8 million for the same period in 2018[228]. - Revenues from coating and fuel materials increased by approximately 15.3million,or1383.615.3 million, or 1383.6%, to 16.4 million for the six months ended June 30, 2019, compared to 1.1millionforthesameperiodin2018[229].Netincomedecreasedbyapproximately1.1 million for the same period in 2018[229]. - Net income decreased by approximately 2.1 million, or 77.3%, to approximately 628,560forthesixmonthsendedJune30,2019,comparedtoapproximately628,560 for the six months ended June 30, 2019, compared to approximately 2.8 million for the same period in 2018[227]. Operational Changes and Challenges - The company disposed of its subsidiary TJComex BVI, which had minimal contribution to operations, to improve overall financial condition and focus on solid waste recycling[186]. - The company is actively seeking to dispose of Hubei Shengrong due to a government policy change requiring facility relocation, which is expected to take 7-8 years[190]. - The company has observed trends in government efforts to control industrial solid waste discharge, which may directly impact operations[191]. - The company continues to rely on a small number of long-term customers, and losing major customers could significantly impact operations[195]. - The company is affected by China's economic conditions and regulatory environment, which could materially impact demand for its services[193]. Cost and Profitability - Cost of revenues for coating and fuel materials increased by approximately 15.3million,or2288.115.3 million, or 2288.1%, to 16.0 million for the six months ended June 30, 2019, compared to 669,067forthesameperiodin2018[229].Grossprofitincreasedbyapproximately669,067 for the same period in 2018[229]. - Gross profit increased by approximately 55,478, or 2.2%, to approximately 2.6millionforthesixmonthsendedJune30,2019,comparedtoapproximately2.6 million for the six months ended June 30, 2019, compared to approximately 2.5 million for the same period in 2018[228]. - The gross margin decreased from approximately 18.7% for the three months ended June 30, 2018, to approximately 17.9% for the same period in 2019, primarily due to increased sales of lower-margin products[221]. Cash Flow and Liquidity - Net cash used in operating activities for the six months ended June 30, 2019, was (2,292,289),comparedto(2,292,289), compared to (886,009) for the same period in 2018[281]. - Cash provided by financing activities was 2,984,000forthesixmonthsendedJune30,2019,comparedto2,984,000 for the six months ended June 30, 2019, compared to 1,568,024 for the same period in 2018[281]. - As of June 30, 2019, net working capital was approximately 0.7million,butafterremovingrelatedpartypayables,itwas0.7 million, but after removing related party payables, it was 5.1 million[278]. - The company expects to continue generating cash flow from operations in the next twelve months[279]. Risks and Uncertainties - Credit risk is a significant concern for the company, with accounts receivable being typically unsecured and derived from customer revenue[285]. - The company manages credit risk through credit approvals, limits, and monitoring procedures, requiring prepayment from customers before production or delivery[287]. - Liquidity risk is present, with the company monitoring its financial position and seeking short-term funding from financial institutions when necessary[289]. - The company is exposed to inflation risk, which could impact operating results if raw material and overhead costs increase significantly[290]. - A majority of the company's operations and assets are denominated in RMB, exposing it to foreign currency risk due to regulatory controls on currency conversion[291].