TD Holdings(GLG) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for Q1 2020 show increased assets and revenue from new commodity trading, significantly reducing net loss Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash | $27,101 | $2,446,683 | | Total Current Assets | $8,877,001 | $7,879,880 | | Total Assets | $12,614,181 | $11,388,400 | | Total Current Liabilities | $5,157,000 | $5,435,414 | | Total Liabilities | $5,358,867 | $5,587,538 | | Total Equity | $7,255,314 | $5,800,862 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Account | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | Total Revenue | $1,483,060 | $399,999 | | Gross Profit | $327,886 | $162,348 | | Net Operating Loss | ($97,229) | ($1,840,289) | | Net Loss | ($139,972) | ($1,829,826) | | Loss per share - basic and diluted | ($0.01) | ($0.35) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($156,559) | ($758,633) | | Net Cash Used in Investing Activities | ($3,424,968) | ($999,481) | | Net Cash Provided by Financing Activities | $1,063,773 | $592,724 | | Net decrease in cash | ($2,419,582) | ($1,143,421) | Note 1: Organization and Business Description TD Holdings, Inc. operates as a holding company through two PRC VIEs, Beijing Tianxing (used luxury car leasing) and Huamucheng (commodity trading), and changed its name on March 6, 2020 - The company conducts its business through two VIEs: Beijing Tianxing (used luxury car leasing) and Huamucheng (commodity trading and supply chain management)[14] - On March 6, 2020, the company changed its name from Bat Group, Inc. to TD Holdings, Inc[13] Note 2: Summary of Significant Accounting Policies The company's significant accounting policies include VIE consolidation, straight-line revenue recognition for operating leases, and ASC 606 adoption for new commodity trading and supply chain services started in December 2019 - The company's business is primarily conducted through its two VIEs, Beijing Tianxing (used car leasing) and Huamucheng (commodity trading)[19] - The commodity trading business, started in December 2019, involves purchasing and selling non-ferrous metals. Revenue is recognized when product ownership is transferred to the customer[33][34] - Supply chain management services, launched in December 2019, consist of loan recommendation services, with revenue recognized when the referral is complete and funds are drawn down by the customer[35][37] Note 8: Capital Transactions In Q1 2020, the company engaged in significant capital raising, agreeing to sell 15 million common shares and $30 million in convertible notes with warrants, yielding $79.5 million in proceeds received post-quarter - On January 22, 2020, the company agreed to sell 15,000,000 shares of Common Stock at $0.90 per share, with the transaction closing on March 23, 2020. Proceeds of $13.5 million were received in April 2020[64] - The company also agreed to sell $30 million in convertible promissory notes with an interest rate of 7.5% and a conversion price of $1.50 per share, accompanied by warrants to purchase 20 million shares at an exercise price of $1.80[65][66] - In April 2020, the note holders converted the notes and exercised the warrants, resulting in the company receiving $36 million in cash and issuing 40 million shares of common stock in May 2020[68] Note 11: Related Party Transactions and Balances The company engaged in significant related party transactions, including purchasing $1.05 million in aluminum ingots and lending $1.59 million to Qianhai Baiyu, while also receiving loans from various related parties - For the three months ended March 31, 2020, the company purchased aluminum ingots worth $1,055,143 from Qianhai Baiyu, a related party[93] - The company lent $1,593,260 to the related party Qianhai Baiyu during the quarter, charging a 10% annual interest rate[94] - As of March 31, 2020, amounts due from related parties totaled $4.82 million, while amounts due to related parties (current) totaled $2.01 million[84][88] Note 12: Segment Reporting For Q1 2020, the company reported two segments: profitable commodity trading (Huamucheng Business) generating most revenue, and loss-making used car leasing (Tianxing Business), unlike 2019 which had only the latter Segment Performance for Three Months Ended March 31, 2020 | Segment | Revenue | Segment (Loss) Profit | | :--- | :--- | :--- | | Tianxing Business (Used Car Leasing) | $14,051 | ($213,444) | | Huamucheng Business (Commodity) | $1,469,009 | $143,930 | - The company has determined it has two operating segments: Huamucheng Business and Tianxing Business. For the same period in 2019, the company only had one operating segment[98] Note 13: Commitments and Contingencies As of March 31, 2020, the company has $365,076 in operating lease commitments and is involved in several legal matters, including a settled 2015 derivative action, a vacated 2017 arbitration, and a new $1 million lawsuit against Harrison Fund - The 2015 Shareholder Derivative Action was settled and dismissed in July 2019[109][110] - The 2017 arbitration award of $1.44 million against Sorghum was vacated by the court, and the company withdrew its appeal in November 2019[111][113] - In April 2020, the company filed a lawsuit against Harrison Fund, LLC to recover a $1,000,000 investment, against which a full impairment has been applied[117][118] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the impact of COVID-19 on used car leasing and the significant revenue contribution from the new commodity trading business, which drove a 271% increase in total revenue to $1.48 million and a 92% reduction in net loss for Q1 2020 Overview As of March 31, 2020, the company operates two business lines: used luxury car leasing, impacted by COVID-19 closures, and a new commodities trading business launched in late 2019 through Huamucheng - The company's luxury car rental facilities were closed from the end of January 2020 and resumed operations in April 2020 due to COVID-19[121] - In November 2019, the company entered the commodity trading business through a VIE agreement with Huamucheng, trading non-ferrous metals like aluminum, copper, silver, and gold[127][128] - For Q1 2020, the company generated $1,053,632 from commodities trading and $415,377 from supply chain management services[129] Results of Operations For Q1 2020, total revenue surged 271% to $1.48 million driven by new commodity trading, while operating lease income fell 96%; gross profit increased 102%, and net loss narrowed 92% due to lower SG&A expenses Comparison of Operations for Three Months Ended March 31 | Metric | 2020 | 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $1,483,060 | $399,999 | 271% | | - Commodity Products | $1,053,632 | $0 | 100% | | - Supply Chain Services | $415,377 | $0 | 100% | | - Operating Leases | $14,051 | $399,999 | (96)% | | Gross Profit | $327,886 | $162,348 | 102% | | SG&A Expenses | ($425,115) | ($1,906,319) | (78)% | | Net Loss | ($139,972) | ($1,829,826) | (92)% | - The 78% decrease in SG&A expenses was mainly due to a $884,208 stock compensation charge in Q1 2019 that did not recur in Q1 2020, and lower legal and consulting fees[150] Liquidity and Capital Resources The company financed operations through various means, securing $81.1 million in equity financing in Q1 2020, with $79.5 million collected post-quarter, which management deems sufficient for the next 12 months to expand commodity trading - In April and May 2020, the company collected $79.5 million from equity financing transactions arranged in Q1 2020[154] - Management expects to use the proceeds from the recent equity financing as working capital to expand its commodity trading business and believes it has sufficient funds for the next 12 months[155][156] Summary of Cash Flows | Cash Flow Activity | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($156,559) | ($758,633) | | Net Cash Used in Investing Activities | ($3,424,968) | ($999,481) | | Net Cash Provided by Financing Activities | $1,063,773 | $592,724 | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2020, with no material changes to internal control over financial reporting during the quarter - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were not effective as of March 31, 2020[166] - No changes in internal control over financial reporting occurred during the quarter that materially affected or are reasonably likely to materially affect internal controls[168] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company provides updates on legal matters, including the settled 2015 derivative action, vacated 2017 arbitration, dismissed 2018 matter, and a new $1 million lawsuit filed in April 2020 against Harrison Fund - A 2015 shareholder derivative action was settled and dismissed in July 2019[169][170] - A 2017 arbitration award against Sorghum was vacated, and the company withdrew its appeal in November 2019[171][173] - On April 6, 2020, the company filed a lawsuit against Harrison Fund, LLC to recover a $1,000,000 investment[175][176] Item 1A. Risk Factors No material changes to risk factors were reported since the company's annual report on Form 10-K filed on May 29, 2020 - No material changes to risk factors were reported since the last annual report[176] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On March 23, 2020, the company issued $30 million in convertible notes and warrants for 20 million shares, which were converted and exercised in April 2020, resulting in 40 million common shares issued - On March 23, 2020, the company issued $30 million in convertible notes and warrants to purchase 20 million shares[177] - In April 2020, the notes were converted and warrants were exercised, leading to the issuance of 40,000,000 shares of Common Stock on May 18, 2020[180]