GD Culture Group(GDC) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents the unaudited interim condensed consolidated financial statements of GD Culture Group Limited and its subsidiaries for the three months ended March 31, 2025 and 2024, including balance sheets, statements of operations and comprehensive loss, statements of changes in shareholders' equity, and statements of cash flows, along with detailed notes explaining the nature of business, significant accounting policies, and specific financial line items Consolidated Balance Sheets Balance Sheet Summary (March 31, 2025 vs. December 31, 2024): | Metric | March 31, 2025 (Unaudited) | December 31, 2024 | | :----------------------------- | :------------------------- | :------------------ | | Total Assets | $2,603,247 | $2,734,987 | | Total Liabilities | $2,668,108 | $2,732,344 | | Total Shareholders' Equity (Deficit) | $(64,861) | $2,643 | | Cash and cash equivalents | $51,236 | $22,538 | | Total Current Assets | $76,010 | $31,733 | | Total Current Liabilities | $1,571,766 | $1,473,881 | Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss Statements of Operations and Comprehensive Loss (Three Months Ended March 31): | Metric | 2025 (Unaudited) | 2024 (Unaudited) | | :------------------------------------------------- | :--------------- | :--------------- | | Total Operating Expenses | $(937,877) | $(4,178,447) | | Loss from Operations | $(937,877) | $(4,178,447) | | Total Other Income | $2,118 | $21,946 | | Loss Before Income Taxes from Continuing Operations | $(935,759) | $(4,156,501) | | Less: Income Tax Expenses | $(41,751) | $(1,038) | | Net Loss | $(977,510) | $(4,157,539) | | Basic and Diluted Loss per Share | $(0.08) | $(0.56) | Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders' Equity - Shareholders' Equity Changes (Three Months Ended March 31, 2025): * Balance as of January 1, 2025: Total Shareholders' Equity (Deficit) was $2,643[20] * Net loss for the period: $(977,510)[20] * Issuance of common stock for cash: $910,000[20] * Foreign currency translation adjustment: $4[20] * Balance as of March 31, 2025: Total Shareholders' Equity (Deficit) was $(64,861)[20] - Shareholders' Equity Changes (Three Months Ended March 31, 2024): * Balance as of January 1, 2024: Total Shareholders' Equity was $12,161,483[22] * Net loss for the period: $(4,157,539)[22] * Issuance of common stock for cash: $829,879[22] * Issuance of common stock for acquisition of 13.33% noncontrolling interest of Shanghai Xianzhui: $3,150,793[22] * Exercise of pre-funded warrants: $654[22] * Exercise of November 2023 Registered Warrants: $0[22] * Foreign currency translation: $(15,109)[22] * Fair value changes of convertible notes receivable: $54,849[22] * Balance as of March 31, 2024: Total Shareholders' Equity was $8,874,217[22] Unaudited Interim Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Three Months Ended March 31): | Cash Flow Activity | 2025 (Unaudited) | 2024 (Unaudited) | | :--------------------------------------- | :--------------- | :--------------- | | Net cash used in operating activities | $(831,308) | $(3,617,910) | | Net cash used in investing activities | $0 | $(1,900,000) | | Net cash provided by financing activities | $860,000 | $830,533 | | Net increase (decrease) in cash and cash equivalents | $28,698 | $(4,689,317) | | Cash and cash equivalents, end of year | $51,236 | $486,201 | Notes to Unaudited Interim Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the financial statements, covering the company's business nature, significant accounting policies, specific asset and liability breakdowns, related party transactions, lease obligations, tax information, equity changes, and subsequent events Note 1 – Nature of Business and Organization - GD Culture Group Limited (GDC) is a Nevada corporation and a holding company, primarily engaged in virtual content production through its subsidiaries AI Catalysis corp. and Shanghai Xianzhui Technology Co., Ltd. (SH Xianzhui)[28] - The Company focuses its business mainly on 1) AI-driven digital human creation and customization, and 2) Live streaming and e-commerce[28] - As of the report date, the Company owns 73.3333% of SH Xianzhui and 100% of AI Catalysis, Citi Profit BVI, Highlight HK, and Highlight WFOE[29][31] - As of March 31, 2025, the Company had $51,236 cash and a working capital deficit of approximately $1.5 million[33][38] - However, subsequent to March 31, 2025, a public offering partially received net proceeds of approximately $4.1 million, leading management to conclude that substantial doubt about the Company's ability to continue as a going concern no longer exists for the next twelve months[33][38] Note 2 – Summary of Significant Accounting Policies - Unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC regulations for interim financial statements[39] - The reporting currency is USD, while PRC subsidiaries use RMB as functional currency[42] - Assets and liabilities are translated at period-end rates, operations at average rates, and equity at historical rates, with translation adjustments included in accumulated other comprehensive income[43] - Software copyrights are stated at cost less accumulated amortization, amortized on a straight-line basis over an estimated useful life of 5 years[48] - Recently Adopted/Issued Accounting Pronouncements: * ASU 2023-07 (Segment Reporting): Adopted for FY2024, with no significant impact[69] * ASU 2023-09 (Income Taxes): Effective for FY beginning after Dec 15, 2024; no material impact expected[70] * ASU 2024-03 (Disaggregation of Income Statement Expenses): Effective for FY beginning after Dec 15, 2026; impact currently being assessed[71] Note 3 – Prepaid and Other Current Assets Prepaid and Other Current Assets: | Asset Type | March 31, 2025 (Unaudited) | December 31, 2024 | | :---------------- | :------------------------- | :---------------- | | Prepaid car rental | $15,579 | $0 | | Total | $15,579 | $0 | Note 4 – Equipment, net Equipment, Net: | Metric | March 31, 2025 (Unaudited) | December 31, 2024 | | :------------------------- | :------------------------- | :---------------- | | Office equipment and furniture | $14,190 | $14,190 | | Less: accumulated depreciation | $(7,486) | $(6,409) | | Total | $6,704 | $7,781 | - Depreciation expense for the three months ended March 31, 2025, was $1,077, compared to $1,183 for the same period in 2024[74] Note 5 – Intangible Assets, net Intangible Assets, Net: | Metric | March 31, 2025 (Unaudited) | December 31, 2024 | | :------------------------- | :------------------------- | :---------------- | | Software copyrights | $4,890,092 | $4,890,092 | | Less: accumulated amortization | $(1,098,918) | $(1,036,518) | | Accumulated impairment | $(2,751,174) | $(2,751,174) | | Total | $1,040,000 | $1,102,400 | - Amortization expense for the three months ended March 31, 2025, was $62,400, a decrease from $182,373 for the same period in 2024[75] - No impairment losses were recorded for intangible assets for the three months ended March 31, 2025 and 2024[76] Future Amortization of Intangible Assets: | Fiscal Year | Amortization | | :---------------- | :----------- | | Remaining of FY2025 | $187,200 | | FY2026 | $249,600 | | FY2027 | $249,600 | | FY2028 | $249,600 | | FY2029 | $104,000 | | Total | $1,040,000 | Note 6 – Other Payables and Accrued Liabilities Other Payables and Accrued Liabilities: | Liability Type | March 31, 2025 (Unaudited) | December 31, 2024 | | :---------------------- | :------------------------- | :---------------- | | Professional service fee | $431,598 | $375,085 | | Payroll | $17,943 | $26,558 | | Loan payable - shareholder | $100,000 | $0 | | Others | $998 | $178 | | Total | $550,539 | $401,821 | Note 7 – Related Party Balances and Transactions Other Payables – Related Parties: | Related Party | Relationship | Nature | March 31, 2025 (Unaudited) | December 31, 2024 | | :------------ | :------------------ | :------------------------------------ | :------------------------- | :---------------- | | Xiaojian Wang | Chief Executive Officer | Accrued compensations | $62,500 | $50,000 | | Xiaojian Wang | Chief Executive Officer | Interest-free loans to the Company | $199,485 | $349,485 | | Xiaojian Wang | Chief Executive Officer | Operating related fees paid on behalf | $50,000 | $50,000 | | Zihao Zhao | Chief Finance Officer | Accrued compensations | $58,333 | $50,833 | | Zihao Zhao | Chief Finance Officer | Reimbursement | $1,958 | $1,948 | | Total | | | $372,276 | $502,266 | - As of the issuance date of the financial statements, interest-free loans received from the Company's officers were fully repaid[80] - Compensation expenses to officers for the three months ended March 31, 2025 and 2024, amounted to $20,000 for both periods[81] Note 8 – Leases Operating Lease Metrics: | Metric | March 31, 2025 (Unaudited) | December 31, 2024 | | :-------------------------- | :------------------------- | :---------------- | | Weighted average remaining lease term | 3.49 years | 3.63 years | | Weighted average discount rate | 7.56% | 7.53% | Operating Lease Balances: | Metric | March 31, 2025 (Unaudited) | December 31, 2024 | | :------------------------------------ | :------------------------- | :---------------- | | Operating lease right-of-use assets, net | $1,229,793 | $1,342,333 | | Current portion of operating lease liabilities | $381,434 | $427,984 | | Non-current portion of operating lease liabilities | $1,026,387 | $1,104,552 | | Total Lease Liabilities | $1,407,821 | $1,532,536 | - Lease expense for the three months ended March 31, 2025, was $123,492, up from $95,057 for the same period in 2024[85] Future Operating Lease Payments (as of March 31, 2025): | Fiscal Year | Operating Leases | | :---------------- | :--------------- | | FY2025 | $371,061 | | FY2026 | $393,261 | | FY2027 | $401,127 | | FY2028 | $409,149 | | FY2029 | $34,605 | | Total lease payments | $1,609,203 | | Less: imputed interest | $201,382 | | Present value of lease liabilities | $1,407,821 | Note 9 – Taxes Income Tax Expenses (Three Months Ended March 31): | Tax Component | 2025 (Unaudited) | 2024 (Unaudited) | | :------------------------ | :--------------- | :--------------- | | Total current tax expenses | $(125,707) | $0 | | Total deferred tax benefits (expenses) | $83,956 | $(1,038) | | Total benefits (provision) for income taxes | $(41,751) | $(1,038) | - The effective tax rate for the three months ended March 31, 2025, was 4.46%, compared to 0.02% for the same period in 2024[93] - As of March 31, 2025, income tax payable to US tax authorities was $267,517, up from $141,810 as of December 31, 2024[93] Deferred Tax Assets and Liabilities (March 31, 2025 vs. December 31, 2024): | Metric | March 31, 2025 (Unaudited) | December 31, 2024 | | :------------------------------------ | :------------------------- | :---------------- | | Total deferred tax assets | $8,741,413 | $8,647,326 | | Less: Valuation allowance | $(8,583,371) | $(8,020,571) | | Deferred tax assets, net of valuation allowance | $158,042 | $626,755 | | Total deferred tax liabilities | $(227,997) | $(780,666) | | Total deferred tax liabilities, net | $(69,955) | $(153,911) | - The Company recorded $57,303 in penalties and interest for failed timely tax filing for the three months ended March 31, 2025[62] - The Company has tax loss carryforwards of approximately $5.3 million from PRC entities (expiring 2028-2029) and $17.5 million from US entities (indefinite carryforward)[94][95] - A 100% valuation allowance is provided for deferred tax assets due to uncertainty of realization[94][95] Note 10 – Concentration of Credit Risk - Financial instruments subject to credit risk include cash deposits and accounts receivable[96][97] - Cash held in PRC financial institutions is not government-insured, but creditworthiness is monitored[97] - Accounts receivable credit risk is managed through credit approvals, limits, monitoring, and requiring prepayments[173] Note 11 – Equity - Common Stock Issuances: * January 11, 2024: Issued 400,000 shares for 13.3333% equity interest in SH Xianzhui[101] * March 2024: Sold 810,277 shares in a registered direct offering for approximately $0.9 million gross proceeds[103] * June 4, 2024: Issued 1,560,000 shares for the purchase of software (AIBox) valued at $1,248,000[104] * March 4, 2025: Sold 1,115,600 shares for net proceeds of $910,000 for working capital[109] - Warrant Activities: * As of March 31, 2025, 2,312,006 unregistered warrants were outstanding, exercisable into 2,110,618 shares at a weighted average exercise price of $29.94[113] * No prefunded warrants were outstanding as of March 31, 2025, as all were exercised between February and October 2024[114] * As of March 31, 2025, 1,616,471 shares of November 2023 Registered Warrants were outstanding[116] - Total outstanding common stock shares were 12,282,894 as of March 31, 2025, up from 11,167,294 as of December 31, 2024[110] Note 12 – Commitments and Contingencies - The Company may be subject to legal proceedings, claims, and disputes in the ordinary course of business, but does not believe these will have a material adverse impact on its financial position, results of operations, or liquidity[117] Note 13 – Segment Reporting - The Company's sole remaining business segment and operations is Virtual Content Production[119] - Management evaluates performance and allocates resources based primarily on operating expenses[118] Note 14 – Subsequent events - Subsequent to March 31, 2025, the Company fully repaid $200,000 to its CEO, including $199,485 for interest-free loans and $515 for operating-related expenses[122] - On May 2, 2025, the Company entered into a securities purchase agreement for the sale of 1,115,600 common shares and 9,380,582 pre-funded warrants, with aggregate gross proceeds of $5,500,000[123][124] - As of the issuance date, $4,478,000 in proceeds were received, with net proceeds expected to be $5,095,000 for working capital[123][124] - On April 28, 2025, the Company agreed to purchase "Chat Box" software by issuing 2,444,295 shares of common stock to Gongzheng Xu and Qing Wang[125] - The transaction was completed on April 29, 2025, and the software will be used to develop its AI business[125] - On April 30, 2025, holders of 1,051,341 registered November 2023 Registered Warrants exercised their options to purchase 952,644 shares of common stock on a cashless basis, leaving 565,130 shares of these warrants outstanding[127] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2025, compared to the same period in 2024, covering business overview, recent developments, key factors affecting operating results, detailed financial performance analysis, liquidity, capital resources, and critical accounting policies Overview - GD Culture Group Limited operates in virtual content production through AI Catalysis and Shanghai Xianzhui[132] - The company's main business areas are AI-driven digital human creation and customization, and live streaming and e-commerce[132] - SyncWaveX is an AI-powered web-based video generation tool for virtual human videos with lip synchronization, targeting content creators, educational/corporate entities, e-commerce vendors, and individual users[133] - Revenue is primarily generated from personalized customization services subscriptions, with foundational functionalities accessible at no cost subject to daily generative output constraints[133][134] Recent Development - Investment in Shanghai Xianzhui: As of March 31, 2025, the Company owns 73.3333% of Shanghai Xianzhui, which provides social media marketing agency services[136] - Offerings: * March 4, 2025: Sold 1,115,600 common shares for $1,000,000 gross proceeds ($910,000 net) for working capital[139] * May 2, 2025: Entered into an agreement to sell 1,115,600 common shares and 9,380,582 pre-funded warrants for $5,500,000 aggregate gross proceeds[140] * As of the report date, $4,478,000 was received, with net proceeds expected to be $5,095,000 for working capital[140] - Nasdaq Compliance: The Company regained compliance with Nasdaq's minimum bid price requirement on June 18, 2024, after its common stock closed at or above $1.00 for 10 consecutive business days[143] - Software Purchase Agreements: * May 31, 2024: Purchased "AIBox" software for $1,248,000, paid by issuing 1,560,000 common shares, to develop its AI business[144] * April 28, 2025: Purchased "Chat Box" software by issuing 2,444,295 common shares, also for AI business development[145] Key Factors that Affect Operating Results - Competition: The e-commerce and live streaming industry is highly competitive, with rivals on platforms like TikTok, potentially impacting sales and market share[146] - Retention of Key Management Team Members: The loss of key executives with experience in AI technology and content creation could negatively affect business operations[147] - Ability to Grow Market Presence and Penetrate New Markets: As an early-stage company, failure to effectively and cost-efficiently expand market presence, especially on social media, could negatively impact operating results[148] Results of Operations (Three Months Ended March 31, 2025 vs. March 31, 2024) Operating Expenses: | Expense Type | March 31, 2025 | March 31, 2024 | | :---------------------------- | :------------- | :------------- | | Selling expenses | $0 | $(2,191,667) | | General and administrative | $(937,877) | $(1,769,280) | | Research and development expense | $0 | $(217,500) | | Total Operating Expenses | $(937,877) | $(4,178,447) | - Other Income, Net: Decreased by $19,828 (90.3%) to $2,118 for the three months ended March 31, 2025, primarily due to the absence of interest income from a third-party loan present in 2024[149][151] - Net Loss: Decreased by $3,180,029 (76.5%) to $977,510 for the three months ended March 31, 2025, from $4,157,539 in the prior year, mainly driven by lower operating expenses[149][153] - The decrease in selling expenses and R&D expenses was mainly due to reduced investment in digital human and e-commerce live streaming marketing/advertising, partly due to uncertainty surrounding TikTok's potential exit from the U.S., and decreased R&D for AI-based digital human applications[150] Liquidity and Capital Resources - Cash Position & Working Capital (March 31, 2025): The Company had $51,236 in cash and a working capital deficit of approximately $1.5 million[154][159] - Subsequent Financing: On May 2, 2025, the Company completed a public offering, partially receiving net proceeds of approximately $4.1 million, which is expected to provide sufficient liquidity for the next twelve months[157][159] Cash Flow Summary (Three Months Ended March 31): | Cash Flow Activity | 2025 (Unaudited) | 2024 (Unaudited) | | :--------------------------------------- | :--------------- | :--------------- | | Net cash used in operating activities | $(831,308) | $(3,617,910) | | Net cash used in investing activities | $0 | $(1,900,000) | | Net cash provided by financing activities | $860,000 | $830,533 | - Net cash used in operating activities decreased significantly due to lower net loss and decreased adjustments for non-cash items like amortization and deferred tax expenses[162] - Net cash used in investing activities decreased due to the absence of a loan to a third party in 2025[162] - Net cash provided by financing activities remained consistent, reflecting continued proceeds from debt issuance and new common stock[163] Critical Accounting Policies and Estimates - Impairment of Long-lived Assets: Management judgment is crucial in assessing impairment for intangible assets (e.g., software copyrights, digital humans) and Right-of-Use (ROU) assets, based on discounted cash flow analysis and market rental information[165][166] - No impairment losses were recognized for intangible assets for the three months ended March 31, 2025 and 2024[166] Recently Issued Accounting Pronouncements - ASU 2023-09 (Income Taxes): Effective for fiscal years beginning after December 15, 2024[167] - Management does not expect a material impact on financial statements[167] - ASU 2023-07 (Segment Reporting): Adopted retrospectively for the year ended December 31, 2024, to improve segment expense disclosures[168] - ASU 2024-03 (Disaggregation of Income Statement Expenses): Effective for fiscal years beginning after December 15, 2026[169] - The Company is currently assessing its impact[169] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the Company's exposure to various market risks, including credit risk, liquidity risk, inflation risk, and foreign currency risk, and outlines the strategies employed to manage these risks Credit Risk - Financial instruments with significant credit risk include cash and accounts receivable[172] - Cash in PRC financial institutions is not government-insured, but creditworthiness is monitored[172] - Accounts receivable credit risk is managed through approvals, limits, monitoring, and requiring prepayments[173] Liquidity Risk - As of March 31, 2025, the Company had $51,236 cash and a working capital deficit of approximately $1.5 million[175] - The CEO provided a Letter of Support for continued financial backing for at least 12 months from the issuance date of the financial statements[175] - Management believes that with recent financing and projected cash flows, the Company has sufficient liquidity for the next twelve months and plans to raise additional capital and implement cost-cutting measures[176] Inflation Risk - Inflationary factors could impair operating results if raw material and overhead costs increase without corresponding increases in product selling prices[178] - While inflation has not materially impacted financial position or results to date, future high inflation could adversely affect gross margin and operating expenses[178] Foreign Currency Risk - A majority of the Company's operations, assets, and liabilities are denominated in RMB, which is subject to PRC government control over currency conversion[179] - Shortages in foreign currency availability could restrict PRC subsidiaries' ability to remit dividends or other payments to the Company[180] ITEM 4. CONTROLS AND PROCEDURES This section reports on the effectiveness of the Company's disclosure controls and procedures and internal control over financial reporting - The Certifying Officers concluded that the Company's disclosure controls and procedures were not effective as of March 31, 2025[180] - There were no material changes in internal control over financial reporting during the most recent fiscal quarter[182] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS This section states that the Company is not currently involved in any material legal proceedings - None[185] ITEM 1A. RISK FACTORS This section refers readers to the risk factors discussed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, noting no material changes in the risks for this quarterly report - Investing in common stock involves a high degree of risk[186] - No material changes to the risk factors described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[186] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the unregistered sales of equity securities and the use of proceeds from such sales during the reporting period - On March 4, 2025, the Company issued 1,115,600 shares of common stock at $0.896379 per share, generating $1,000,000 gross proceeds, for working capital purposes[187] - These securities were issued under exemptions from registration requirements of the Securities Act (Section 4(a)(2) and Rule 506(b) of Regulation D)[187] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section reports on any defaults upon senior securities - None[188] ITEM 4. MINE SAFETY DISCLOSURES This section indicates that mine safety disclosures are not applicable to the Company - Not applicable[189] ITEM 5. OTHER INFORMATION This section reports on any other information required to be disclosed that is not covered by other items - None[190] ITEM 6. EXHIBITS This section lists all exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q - The section lists various exhibits filed as part of or incorporated by reference into the Quarterly Report on Form 10-Q, including certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[192]