GD Culture Group(GDC) - 2023 Q3 - Quarterly Report

Business Segments - The company focuses on three main segments: AI-driven digital human creation, live streaming and e-commerce, and live streaming interactive gaming [185]. - The AI-driven digital human sector utilizes AI algorithms to create realistic 3D or 2D digital human models, which can be customized for various industries [186]. - The e-commerce and live streaming sector integrates digital human technology into live streaming platforms, enhancing online commerce engagement [188]. Revenue Generation - The company generates revenue primarily from service and advertising revenue from digital human creation, product sales from live streaming e-commerce, and virtual paid gifts from interactive gaming [189]. Auditor Changes - On October 9, 2023, the company dismissed its auditor Enrome LLP and appointed HTL International, LLC as the new auditor [194]. Equity and Financing Activities - The company entered into an equity purchase agreement to acquire a 13.3333% interest in SH Xianzhui, issuing 400,000 shares valued at $2.7820 per share [196]. - A registered direct offering on November 1, 2023, involved the sale of 1,436,253 shares at a price of$3.019 per share, with net proceeds expected to be approximately $9.05 million [200]. - The company plans to use the net proceeds from the offering for working capital and general corporate purposes [200]. Market Competition and Strategy - The competitive landscape in e-commerce and live streaming includes various content creators, impacting the company's market share and sales [203]. - The company aims to expand its market presence on social media to enhance growth and penetration into new markets [204]. Financial Performance - Total revenues for the nine months ended September 30, 2023, were$150,000, a 100.0% increase compared to nil for the same period in 2022 [213]. - Gross profit for the nine months ended September 30, 2023, was $150,000, reflecting a 100.0$15.8 million, from $19.7 million for the nine months ended September 30, 2022, to$3.9 million for the same period in 2023, an 80.0% reduction [216]. - Loss from continuing operations for the nine months ended September 30, 2023, was approximately $3.6 million, a decrease of approximately$16.1 million or 81.5% from $19.7 million for the same period in 2022 [218]. - Net loss for the nine months ended September 30, 2023, decreased by approximately$19.9 million, or 84.6%, to approximately $3.6 million from approximately$23.5 million for the same period in 2022 [219]. - Other income increased by approximately $147,000 during the nine months ended September 30, 2023, compared to nil for the same period in 2022, due to accrued interest from convertible notes [217]. - Operating expenses for the three months ended September 30, 2023, were$3,667,011, a 5,626.0% increase from $64,041 for the same period in 2022 [208]. - Loss from operations for the three months ended September 30, 2023, was$(3,667,011), a 5,626.0% increase from $(64,041) for the same period in 2022 [208]. - Net loss for the three months ended September 30, 2023, was$(3,528,275), a 13.8% decrease from $(4,091,971) for the same period in 2022 [212]. - Loss from discontinued operations for the three months ended September 30, 2023, was$(10,358), reflecting a 100.0% loss compared to nil for the same period in 2022 [208]. Cash Flow and Working Capital - As of September 30, 2023, the company's net working capital was approximately $6.3 million, with expectations to generate cash flow from operations through acquisitions in the next twelve months [239]. - Net cash used in operating activities for the nine months ended September 30, 2023, was approximately$6.5 million, compared to $1.0 million for the same period in 2022, primarily due to an increase in prepayments [244]. - Net cash used in investing activities was$5.0 million for the nine months ended September 30, 2023, a decrease from approximately $12.3 million in the same period in 2022, mainly due to purchases of intangible assets and investments in convertible notes [245]. - Net cash provided by financing activities was$12.7 million for the nine months ended September 30, 2023, compared to nil in the same period in 2022, driven by an increase in common stock issuance and contributions from noncontrolling shareholders [246]. - The company had cash of $1.6 million as of September 30, 2023, compared to$0.4 million as of December 31, 2022 [243]. Risk Factors - The company is exposed to credit risk primarily from cash and accounts receivable, with measures in place for credit approvals and monitoring [248]. - Liquidity risk is present, with the company potentially needing short-term funding from financial institutions or owners to meet commitments [250]. - The company is also exposed to inflation risk, which could impact operating results if raw material costs increase significantly [251]. - 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 exchange [252]. - The company does not anticipate that recently issued accounting standards will have a material effect on its financial statements [238].