Baosheng(BAOS) - 2022 Q4 - Annual Report

Part I Item 3. Key Information This section outlines principal investment risks for Baosheng Media Group, including business, China operations, and ordinary shares, highlighting advertiser budget cuts, customer concentration, high accounts receivable, evolving Chinese regulations, and Nasdaq listing compliance Risk Factors The company faces significant business, China-specific, and stock listing risks, including reliance on advertiser spending, high customer concentration and accounts receivable, regulatory uncertainty in China, and Nasdaq listing compliance issues - The company's revenue is highly dependent on advertiser budgets, which are susceptible to macroeconomic conditions, and on media rebate policies, which can change unfavorably[33][35][36] Accounts Receivable Status (as of Dec 31) | Year | Gross Accounts Receivable | Bad Debt Allowance | % Over 6 Months Old | | :--- | :--- | :--- | :--- | | 2022 | $49.8 million | $17.7 million | 64.7% | | 2021 | $62.8 million | $6.4 million | 63.4% | | 2020 | $69.9 million | $4.7 million | 38.2% | Top 5 Customer Revenue Concentration | Year | Top 5 Customers' % of Total Revenue | | :--- | :--- | | 2022 | 70.6% (36.8% + 13.3% + 10.7% + 5.1% + 4.7%) | | 2021 | 96.0% (41.8% + 28.1% + 16.5% + 7.6% + 2.0%) | | 2020 | 89.9% (68.9% + 12.8% + 3.5% + 2.4% + 2.3%) | - The company has faced non-compliance with Nasdaq's minimum bid price requirement, leading to share consolidations in May 2022 and March 2023 to regain compliance[187][188][189] - The Chinese government's increasing oversight over data security (CAC) and overseas listings (CSRC) could adversely impact business operations and future offerings[122][127][128] Item 4. Information on the Company This section details the company's history, corporate structure, and online marketing operations in China, highlighting the impact of client loss and evolving PRC regulatory risks History and Development of the Company Baosheng Media Group, a Cayman Islands holding company operating via PRC subsidiaries, completed its Nasdaq IPO in 2021 and has since undergone share consolidations to maintain listing compliance amid evolving PRC regulatory risks - The company is a holding company incorporated in the Cayman Islands, with all operations conducted through its wholly-owned PRC subsidiaries[215] - Completed its IPO on the Nasdaq Capital Market on February 8, 2021, raising net proceeds of approximately $30.2 million[218] - To address non-compliance with Nasdaq's minimum bid price rule, the company executed share consolidations in May 2022 (3.2-to-1) and March 2023 (6-to-1)[220][222] - The company notes that new CSRC rules effective March 31, 2023, will require filings for future overseas offerings, creating uncertainty and compliance requirements[232] Business Overview Baosheng provides online marketing solutions in China, offering SEM and Non-SEM services, with revenue from media rebates and advertiser fees, but has seen gross billing decline due to COVID-19 and the loss of a major client - The company's business model revolves around serving advertisers by managing online marketing campaigns and serving media by procuring advertisers for their ad inventory[237][239][240] Gross Billing by Advertiser Industry (USD) | Industry | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | E-commerce & online service | $23.6M | $19.1M | $24.3M | | Online gaming | $10.6M | $12.4M | $33.6M | | Third-party ad agencies | $4.1M | $4.9M | $64.6M | | Total Gross Billing | $54.6M | $54.7M | $134.9M | Revenue Breakdown by Model (USD) | Revenue Model | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Rebates and incentives from publishers | $1.93M | $3.66M | $9.43M | | Net fees from advertisers | $0.48M | $0.25M | $2.48M | | Total Revenue | $2.42M | $3.91M | $11.91M | - The company lost its authorized agency status with Sogou, its top customer in 2020 (68.9% of revenue), in March 2021, significantly impacting its SEM services revenue[312] Organizational Structure The company operates under a multi-layered holding structure with the parent in the Cayman Islands, intermediary subsidiaries in BVI and Hong Kong, and operating entities in the PRC, including significant pre-IPO investors - The company operates under a multi-layered holding structure with the parent company in the Cayman Islands, intermediary subsidiaries in BVI and Hong Kong, and the main operating entities located in the PRC[400][401] Item 5. Operating and Financial Review and Prospects This section analyzes the company's financial performance, highlighting a significant net loss in FY2022 driven by revenue decline and increased doubtful account provisions, which raises substantial doubt about its going concern ability Operating Results The company's operating results significantly deteriorated in FY2022, with total revenues falling 38.3% to $2.4 million and net loss widening to $23.7 million, primarily due to a sharp increase in doubtful account provisions and loss of a major client Consolidated Results of Operations (USD) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenues | $2,415,098 | $3,911,560 | $11,911,229 | | Gross (Loss) Profit | $(31,843) | $1,834,044 | $10,654,876 | | Provision for doubtful accounts | $(20,460,667) | $(6,880,008) | $(1,960,604) | | Loss from operations | $(24,067,983) | $(9,423,709) | $5,643,175 (Income) | | Net (Loss) Income | $(23,738,837) | $(6,747,453) | $6,944,691 | - Revenue from SEM services plummeted by 86.9% in 2022 to $0.3 million from $2.4 million in 2021, primarily due to the absence of revenue from the former top client, Sogou[435] - The provision for doubtful accounts receivable surged by 363.9% to $19.3 million in 2022, as advertisers in the mobile app, education, and gaming industries faced financial difficulties and delayed payments[447] Liquidity and Capital Resources The company's financial condition raises substantial doubt about its going concern ability due to a $22.5 million net loss in 2022 and historical cash outflows, despite positive operating cash flow of $1.6 million in 2022 - The company's net loss and historical operating cash outflows raise substantial doubt about its ability to continue as a going concern[483][688][774] Summary of Cash Flows (USD) | Cash Flow | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $1,601,481 | $(31,213,199) | $(3,393,204) | | Net Cash from Investing Activities | $(3,777,782) | $(6,414,339) | $1,244,612 | | Net Cash from Financing Activities | $295,765 | $36,085,744 | $772,373 | - Accounts receivable turnover days remained high at 369 in 2022 and 442 in 2021, compared to 167 in 2020, indicating persistent issues with customer payments[493] Item 6. Directors, Senior Management and Employees This section details the company's leadership, compensation, board structure, and employee base, noting a decrease in workforce and identifying principal shareholders - Shasha Mi has served as the CEO and Chairperson of the Board since July 2022[514] Employee Headcount by Function (as of Dec 31, 2022) | Function | Number of Employees | % of Total | | :--- | :--- | :--- | | Ad optimization | 33 | 56% | | Sales and marketing | 10 | 17% | | Management and administration | 9 | 15% | | Advertiser services | 4 | 7% | | Media relationships | 3 | 5% | | Total | 59 | 100% | Principal Shareholders' Ownership (as of April 18, 2023) | Shareholder | % of Ordinary Shares | | :--- | :--- | | An Rui Tai BVI | 22.40% | | PBCY Investment | 20.37% | | Deng Guan BVI | 15.61% | | EJAM BVI | 6.82% | Item 7. Major Shareholders and Related Party Transactions This section details major shareholders and related party transactions, including $4.5 million in services purchased from an EJAM Group-controlled entity and the settlement of a $1.73 million receivable from a former chairperson - In 2022, the company purchased services worth $4,464,919 from Horgos Zhijiantiancheng, an entity controlled by shareholder EJAM Group[547] - A receivable of $1.73 million due from former Chairperson Ms. Wenxiu Zhong, related to a litigation guarantee, was recorded as of Dec 31, 2021, and was fully settled by March 7, 2022[550][841] Item 8. Financial Information This section presents consolidated financial statements, details ongoing legal proceedings primarily for unpaid fees, and states the company's policy of retaining earnings rather than paying cash dividends - The company is a party to multiple ongoing legal proceedings, mostly as a plaintiff in breach of contract cases seeking to recover payments from advertisers[552][560][561] - The company does not have a current plan to pay dividends and intends to retain future earnings to fund operations and growth[564] Item 10. Additional Information This section provides supplementary details on share capital, corporate governance under Cayman Islands law, exchange controls, and taxation, including the company's assessment of not being a Passive Foreign Investment Company (PFIC) - The company's authorized share capital is US$60,000 divided into 6,250,000 Ordinary Shares with a par value of $0.0096 per share, following share consolidations[569] - The company is an exempted company under Cayman Islands law, which provides for different corporate governance and shareholder rights compared to U.S. corporations[598] - For U.S. federal income tax purposes, the company states that based on its current operations and asset composition, it does not expect to be treated as a Passive Foreign Investment Company (PFIC)[631] Item 11. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks including interest rate, liquidity, and foreign exchange fluctuations, with operations in RMB and reporting in USD, and also experiences business seasonality - The company faces foreign exchange risk as its revenues and expenses are denominated in RMB, while its reporting currency is the U.S. dollar[649] - The business is subject to seasonality, with advertising spend and revenues tending to rise during holiday seasons and towards the end of the year[651] Part II Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds This section details the use of proceeds from financing activities, including $30.2 million from the February 2021 IPO and $9.9 million from a March 2021 private placement, primarily for working capital - The company received net proceeds of approximately $30.2 million from its February 2021 IPO and has used about $28.3 million for working capital and general corporate purposes[653] - A private placement in March 2021 raised an additional $9.9 million, which has been fully utilized for working capital[654] Item 15. Controls and Procedures Management concluded that as of December 31, 2022, disclosure controls and procedures were ineffective due to material weaknesses in accounting personnel expertise and the absence of a comprehensive policies manual - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were not effective[656] - Two material weaknesses were identified in internal control over financial reporting: 1) Lack of sufficient personnel with U.S. GAAP and SEC reporting knowledge. 2) Lack of a comprehensive accounting policies and procedures manual[660] Item 16. Corporate Governance and Other Information This section covers corporate governance, including the audit committee financial expert, code of ethics, principal accountant change from Friedman LLP to YCM CPA INC., and the company's use of home country governance practices - On July 20, 2022, the company terminated its independent auditor, Friedman LLP, and appointed YCM CPA INC. The change was not due to any disagreement on accounting principles or practices[670] - The company, as a foreign private issuer, follows certain Cayman Islands corporate governance practices in lieu of Nasdaq listing standards[675][676] Part III Item 18. Financial Statements This section presents the company's audited consolidated financial statements, revealing a significant deterioration in financial health with a $23.7 million net loss in 2022 and an auditor's 'Going Concern' opinion - The auditor's report expresses substantial doubt about the Company's ability to continue as a going concern due to a net loss of $23.7 million for the year ended December 31, 2022[688][774] Consolidated Balance Sheet Highlights (USD) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $6,679,077 | $4,751,538 | | Accounts receivable, net | $32,101,818 | $56,363,183 | | Total Assets | $58,046,415 | $94,080,133 | | Total Liabilities | $12,609,790 | $20,018,844 | | Total Shareholders' Equity | $45,436,625 | $74,061,289 | Consolidated Income Statement Highlights (USD) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenues | $2,415,098 | $3,911,560 | $11,911,229 | | Gross (Loss) Profit | $(31,843) | $1,834,044 | $10,654,876 | | Net (Loss) Income | $(23,738,837) | $(6,747,453) | $6,944,691 | | (Loss) Earnings Per Share | $(15.47) | $(4.62) | $6.54 |