TD Holdings(GLG) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements TD Holdings, Inc. reported a shift from $3.0 million net income to a $4.4 million net loss for the six months ended June 30, 2023, driven by a 32% revenue decrease and 169% SG&A increase, despite asset and equity growth from $45.9 million in financing Unaudited Condensed Consolidated Balance Sheets As of June 30, 2023, total assets increased to $398.5 million from $363.1 million, primarily due to loans receivable, while total equity rose to $331.4 million from $298.0 million driven by stock issuances Condensed Consolidated Balance Sheet Highlights (in USD) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $398,495,104 | $363,097,798 | | Cash and cash equivalents | $1,278,781 | $893,057 | | Loans receivable from third parties | $187,216,058 | $143,174,634 | | Goodwill | $154,422,111 | $160,213,550 | | Total Liabilities | $67,142,553 | $65,123,629 | | Total Equity | $331,352,551 | $297,974,169 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company experienced a 32% revenue decline to $69.1 million and swung to a $4.4 million net loss for the six months ended June 30, 2023, compared to a $3.0 million net income in the prior year, exacerbated by increased operating expenses Three Months Ended June 30, (in USD) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $34,512,296 | $53,683,395 | | Gross (Loss)/Profit | $(48,068) | $439,129 | | Net (Loss)/Income | $(4,838,230) | $1,425,271 | | Basic & Diluted (Loss)/Income Per Share | $(0.03) | $0.03 | Six Months Ended June 30, (in USD) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $69,089,934 | $101,842,511 | | Gross (Loss)/Profit | $(123,709) | $996,067 | | Net (Loss)/Income | $(4,386,953) | $3,019,128 | | Basic & Diluted (Loss)/Income Per Share | $(0.03) | $0.07 / $0.06 | Unaudited Condensed Consolidated Statements of Changes in Equity Total equity increased by approximately $33.4 million to $331.4 million as of June 30, 2023, primarily from stock issuances, partially offset by a $4.4 million net loss and $14.2 million in foreign currency translation losses - For the six months ended June 30, 2023, total equity increased by approximately $33.4 million. Key drivers included capital raised from stock issuances, offset by a net loss of $4.4 million and foreign currency translation losses of $14.2 million[14] Unaudited Condensed Consolidated Statements of Cash Flows For the first six months of 2023, net cash from operations was $7.2 million, investing activities used $51.3 million, and financing activities provided $45.9 million, resulting in a $1.3 million cash balance Summary of Cash Flows for the Six Months Ended June 30, (in USD) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $7,181,538 | $469,839 | | Net Cash Used in Investing Activities | $(51,297,876) | $(60,102,346) | | Net Cash Provided by Financing Activities | $45,909,073 | $59,920,000 | | Net Increase/(Decrease) in Cash | $385,724 | $(385,652) | Notes to Consolidated Financial Statements (Unaudited) Notes detail the company's PRC operations via a VIE, a rise in loans receivable to $187.2 million, $154.4 million goodwill, significant equity financing including a $42.35 million private placement, and a Nasdaq delisting warning - The company primarily conducts commodity trading and supply chain management services in the PRC through its subsidiaries and Shenzhen Tongdow Internet Technology Co., Ltd., a variable interest entity (VIE)[20][23] - Loans receivable from third parties increased to $187.2 million as of June 30, 2023, from $143.2 million at year-end 2022. The company recognized $9.4 million in interest income from these loans in the first six months of 2023[35] - In January 2023, the company raised gross proceeds of $42.35 million by selling 35 million shares of common stock in a private placement. In June 2023, it issued 11 million shares to service providers, recording $5.7 million in stock-based compensation[63][70] - On May 15, 2023, the company received a notification from Nasdaq for its common stock's bid price falling below the $1.00 minimum requirement for 30 consecutive business days[88] - Subsequent to the quarter end, on July 31, 2023, the company sold 28 million shares of common stock for gross proceeds of $9.8 million[100] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 32% revenue decline and shift to a $4.4 million net loss to COVID-19, RMB depreciation, and a $5.7 million stock-based compensation charge, asserting going concern due to substantial equity financing Results of Operations For the first half of 2023, total revenue decreased by 32% to $69.1 million, resulting in a gross loss and a $4.4 million net loss, primarily due to a 169% surge in SG&A expenses driven by $5.7 million in stock-based compensation Comparison of Results for the Six Months Ended June 30, | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $69,089,934 | $101,842,511 | (32)% | | Gross (Loss)/Profit | $(123,709) | $996,067 | (112)% | | SG&A Expenses | $(11,073,912) | $(4,123,486) | 169% | | Net (Loss)/Income | $(4,386,953) | $3,019,128 | (245)% | - The decrease in revenue from commodity product sales was attributed to the impact of COVID-19 and the depreciation of RMB against USD[125] - The 169% increase in SG&A expenses was mainly due to (i) $5.7 million in stock-based compensation expenses and (ii) a $2.04 million increase in amortization of intangible assets[130] Cash Flows and Capital Resources The company generated $7.2 million in cash from operations despite a net loss, with $45.9 million from financing activities, including a $42.35 million private placement, supporting management's going concern assessment - The company incurred a net loss of $4.4 million but had a cash inflow from operations of $7.2 million for the six months ended June 30, 2023[133] - Cash from financing activities was mainly from a $42.35 million private placement, a $559,073 ATM transaction, and a $3.0 million convertible note issuance[133][139] - Management believes that based on recent capital market activities, the company will continue as a going concern for the following 12 months[134] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is marked as not applicable - This section is marked as 'Not applicable'[145] Item 4. Controls and Procedures Management concluded that disclosure controls were ineffective as of June 30, 2023, due to material weaknesses including insufficient U.S. GAAP experience among accounting staff and inadequate formal financial reporting procedures - Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2023[146] - Material weaknesses were identified, including a lack of U.S. GAAP knowledge among accounting staff, insufficient formal procedures for revenue recognition and related party transactions, and inadequate written accounting policies[147][148] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no legal proceedings during the period - None[152] Item 1A. Risk Factors Key risks include potential non-compliance of the VIE structure, Nasdaq delisting risk due to sub-$1.00 bid price, PRC regulatory uncertainty on overseas listings and data, and HFCAA implications despite PCAOB-inspected auditor - The company's reliance on a VIE structure in the PRC poses a risk, as PRC authorities could deem the arrangements non-compliant, leading to severe penalties or loss of control over the VIE's operations[153][154][155] - On May 15, 2023, the company received a Nasdaq deficiency letter for its stock price falling below the $1.00 minimum bid requirement. It has until November 13, 2023, to regain compliance to avoid potential delisting[157][159] - The PRC government's significant oversight and evolving regulations on overseas listings, cybersecurity (2022 Cybersecurity Review Measures), and data protection (Data Security Law) create substantial uncertainty and could materially impact operations[166][180][184] - While the PCAOB can currently inspect auditors in China, the situation remains uncertain. The company's auditor, Audit Alliance LLP, is based in Singapore and is registered with and subject to PCAOB inspection[174][175] Item 6. Exhibits This section lists all exhibits, including CEO and CFO certifications required by Sarbanes-Oxley Act and Inline XBRL financial data documents - The report includes required certifications from the CEO and CFO under Rules 13a-14(a) and Section 906 of the Sarbanes-Oxley Act[201] - Interactive data files (Inline XBRL) are included as exhibits 101 and 104[201]