GD Culture Group(GDC) - 2021 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's analysis of the company's financial condition and operational results ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents the unaudited condensed consolidated financial statements for the period ended June 30, 2021, including balance sheets, statements of operations, changes in shareholders' equity, and cash flows, along with detailed notes Condensed Consolidated Balance Sheets As of June 30, 2021, total assets increased to $45.1 million from $25.1 million at the end of 2020, driven by significant increases in cash and plant and equipment, while total liabilities and shareholders' equity also grew | Financial Metric | June 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $19,251,392 | $998,717 | | Plant and Equipment, Net | $5,734,958 | $82,833 | | Total Assets | $45,113,983 | $25,135,119 | | Liabilities & Equity | | | | Total Liabilities | $6,922,930 | $3,222,364 | | Total Shareholders' Equity | $38,191,053 | $21,912,755 | | Total Liabilities and Shareholders' Equity | $45,113,983 | $25,135,119 | Condensed Consolidated Statements of Operations For the six months ended June 30, 2021, revenues significantly increased to $6.9 million, but a substantial rise in operating expenses led to a $20.2 million loss from operations and a $29.6 million net loss Three Months Ended June 30 | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | Total Revenues | $3,495,731 | $46,482 | | Gross Profit | $3,341,838 | $38,870 | | Income (Loss) from Operations | ($5,793,547) | ($167,312) | | Net Income (Loss) | ($3,208,989) | $6,772,568 | | Basic and Diluted EPS | ($0.09) | $0.25 | Six Months Ended June 30 | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Total Revenues | $6,876,290 | $46,482 | | Gross Profit | $6,717,604 | $38,870 | | Income (Loss) from Operations | ($20,178,663) | ($880,894) | | Net Income (Loss) | ($29,553,783) | $6,958,969 | | Basic and Diluted EPS | ($0.85) | $0.25 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash used in operating activities was $3.3 million, while net cash provided by financing activities was substantial at $22.8 million, primarily from common stock issuance, resulting in a $18.3 million net increase in cash | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($3,333,791) | $1,005,664 | | Net cash used in investing activities | ($1,211,929) | ($4,502,936) | | Net cash provided by financing activities | $22,795,027 | $3,013,714 | | Net (Decrease)/Increase in Cash | $18,252,675 | ($544,047) | | Cash and Cash Equivalents, End of Period | $19,251,392 | $1,939,520 | - Significant non-cash financing and investing activities for the six months ended June 30, 2021, included the issuance of common stock for bonuses ($2.6 million), purchase of Bitcoin mining machines ($6.2 million), and employee compensation ($16.9 million)[17] Notes to Financial Statements The notes provide critical context to the financial statements, detailing the company's history of reverse mergers, acquisitions, and dispositions, including the strategic pivot towards digital currency mining - On March 30, 2021, the company sold its subsidiary Tongrong WFOE, which contractually controlled the Rong Hai coal business, with this disposition treated as a discontinued operation[39][106] - The company's primary operations are now conducted through its Variable Interest Entity (VIE), Sichuan Wuge Network Games Co., Ltd. ("Wuge"), which was acquired in January 2020[34][99][104] - As a subsequent event, on July 28, 2021, the company entered into an agreement to purchase additional digital currency mining machines for approximately $16.4 million, payable in 7.6 million shares of common stock[167][168] - The company received 54 crypto coin wallets holding Bitcoin valued at approximately $1.81 million as part of a make good provision, which was recorded as other income and an indefinite-life intangible asset[118][119] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's strategic shift following the disposition of its coal wholesale business to focus on IoT and electronic token business, with a significant pivot towards cryptocurrency mining, impacting revenue, expenses, and liquidity Recent Development The company has aggressively moved into cryptocurrency mining, with agreements to purchase 10,000 Bitcoin mining machines for ~$6.2 million and additional machines for ~$16.4 million, both payable in stock, and formed a joint venture for a digital energy carbon neutral innovation platform - The company entered into an asset purchase agreement on February 23, 2021, to acquire 10,000 Bitcoin mining machines for a purchase price of ~$6.16 million, payable in 1,587,800 shares of common stock[175] - On July 28, 2021, the company agreed to purchase additional digital currency mining machines for ~$16.44 million, payable in 7,647,493 shares of common stock, to further develop its mining operations[177] - A joint venture was formed on June 1, 2021, to create a digital energy carbon neutral innovation platform, with the company contributing $1 million for a 51% interest[177] Results of Operations For the three months ended June 30, 2021, revenues surged to $3.5 million, but operating expenses ballooned to $9.1 million, resulting in a $5.8 million loss from operations, and a $29.6 million net loss for the six-month period Three Months Ended June 30 | Metric (Three Months Ended June 30) | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $3,495,731 | $46,482 | +7,420.6% | | Gross Profit | $3,341,838 | $38,870 | +8,497.5% | | Operating Expenses | $9,135,385 | $206,182 | +4,330.7% | | Loss from Operations | ($5,793,547) | ($167,312) | +3,362.7% | | Net (Loss) Income | ($3,208,989) | $6,772,568 | -147.4% | Six Months Ended June 30 | Metric (Six Months Ended June 30) | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $6,876,290 | $46,482 | +14,693.4% | | Gross Profit | $6,717,604 | $38,870 | +17,182.2% | | Operating Expenses | $26,896,267 | $919,764 | +2,824.3% | | Loss from Operations | ($20,178,663) | ($880,894) | +2,190.7% | | Net (Loss) Income | ($29,553,783) | $6,958,969 | -524.7% | - The significant increase in operating expenses for both the three and six-month periods was mainly attributed to increased employee compensation[192][199] Liquidity and Capital Resources The company's liquidity position improved significantly, with cash increasing to $19.3 million as of June 30, 2021, primarily due to $22.8 million in net cash provided by financing activities from common stock issuance - Cash and cash equivalents increased to $19,251,392 at June 30, 2021, from $998,717 at December 31, 2020[225] - Net cash provided by financing activities was $22.8 million for the six months ended June 30, 2021, mainly from $22.5 million in proceeds from the issuance of common stock[228] - Net working capital was approximately $21.7 million as of June 30, 2021[223] QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company identifies several market risks, including credit risk from unsecured accounts receivable and uninsured cash deposits, liquidity risk, inflation risk, and foreign currency risk due to RMB-denominated operations - Credit Risk: The company is exposed to credit risk from unsecured accounts receivable and cash held in PRC financial institutions, which is not government-insured[229][230] - Foreign Currency Risk: A majority of operating activities are denominated in RMB, which is not freely convertible and is subject to PRC government policies, creating foreign exchange risk[233] CONTROLS AND PROCEDURES As of March 31, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were not effective, with no material changes to internal control over financial reporting during the most recent fiscal quarter - Management, including the CEO and CFO, concluded that as of March 31, 2021, the company's disclosure controls and procedures were not effective[235] PART II — OTHER INFORMATION This section covers other information including legal proceedings, risk factors, unregistered sales of equity securities, and exhibits LEGAL PROCEEDINGS The company reported no legal proceedings during the period - No legal proceedings were reported[237] RISK FACTORS This section is not applicable as the company qualifies as a smaller reporting company - Not applicable for smaller reporting companies[237] UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported[237] EXHIBITS This section lists the exhibits filed as part of the quarterly report, including CEO and CFO certifications and Inline XBRL data files - The report includes required certifications from the Co-Chief Executive Officer, President, and Chief Financial Officer, as well as Inline XBRL documents[239]