GD Culture Group(GDC) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Q1 2022 saw $7.6 million in revenues and $985,876 net income, a significant turnaround from a $26.3 million net loss in Q1 2021, driven by the Wuge digital door sign business Condensed Consolidated Balance Sheets Total assets decreased to $48.15 million from $50.54 million, while total liabilities decreased to $15.06 million, resulting in an increase in shareholders' equity to $33.09 million Condensed Consolidated Balance Sheet Highlights (in USD) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $15,366,174 | $15,931,353 | | Total Assets | $48,151,492 | $50,535,257 | | Total Current Liabilities | $15,049,472 | $18,446,528 | | Total Liabilities | $15,056,718 | $18,455,266 | | Total Shareholders' Equity | $33,094,774 | $32,079,991 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Q1 2022 revenue from Wuge digital door signs reached $7.6 million, leading to $1.2 million operating profit and $985,876 net income, a substantial improvement from a $26.3 million net loss in Q1 2021 Q1 2022 vs. Q1 2021 Performance (in USD) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total Revenues | $7,616,615 | $3,380,559 | | Gross Profit | $2,088,665 | $3,375,766 | | Operating Expenses | $856,535 | $17,760,882 | | Loss from Operations | $1,232,130 | $(14,385,116) | | Net (Loss) Income | $985,876 | $(26,344,794) | | (Loss) / Earnings Per Share | $0.02 | $(0.80) | Condensed Statements of Changes in Shareholders' Equity Shareholders' equity increased by approximately $1.0 million to $33.1 million in Q1 2022, primarily due to net income, partially offset by common stock cancellation - Total shareholders' equity rose from $32,079,991 at the beginning of the period to $33,094,774 at March 31, 2022[16][17] - The company cancelled 7,647,493 shares of common stock during the quarter, reducing common stock and additional paid-in capital by a combined $16.4 million[16] Condensed Consolidated Statements of Cash Flows Net cash decreased by $2.4 million in Q1 2022, ending at $12.2 million, primarily due to $2.5 million used in operating activities, contrasting with a $21.9 million increase in Q1 2021 Cash Flow Summary (in USD) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $(2,462,442) | $394,702 | | Net Cash from Investing Activities | $(6,961) | $(1,188,796) | | Net Cash from Financing Activities | $0 | $22,794,575 | | Net (Decrease)/Increase in Cash | $(2,390,111) | $21,916,288 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the company's VIE structure for Wuge operations, the disposal of its coal business, and the subsequent agreement to acquire Yuan Ma through a new VIE structure - The company operates through a VIE structure with Sichuan Wuge Network Games Co., Ltd. ("Wuge"), engaged in IoT and electronic tokens, which carries unique, untested legal risks[22][24] - On March 31, 2021, the company disposed of its subsidiary Tongrong WFOE and its VIE, Rong Hai, which was engaged in the coal wholesale business, now classified as discontinued operations[23] - Subsequent to the quarter end, on April 14, 2022, the company agreed to acquire Shanghai Yuanma Food and Beverage Management Co., Ltd. through a new VIE structure by issuing 7,680,000 shares of common stock[136][137] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Q1 2022 revenues increased 125.3% to $7.6 million, while operating expenses decreased 95.2%, leading to $1.2 million operating income and sufficient liquidity for the next twelve months Q1 2022 vs Q1 2021 Operational Results Summary (in USD) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $7,616,615 | $3,380,559 | $4,236,056 | 125.3% | | Gross Profit | $2,088,665 | $3,375,766 | $(1,287,101) | (38.1)% | | Operating Expenses | $856,535 | $17,760,882 | $(16,904,347) | (95.2)% | | Income (Loss) from Operations | $1,232,130 | $(14,385,116) | $15,617,246 | (108.6)% | | Net Income (Loss) | $985,876 | $(26,344,794) | $27,330,670 | (103.7)% | - The significant decrease in operating expenses was mainly due to decreased employee compensation[159] - Net cash used in operating activities was approximately $2.5 million for Q1 2022, a reversal from $0.4 million provided by operating activities in Q1 2021, primarily due to a decrease in customer deposits[185] Quantitative and Qualitative Disclosures About Market Risk The company faces credit, liquidity, inflation, and significant foreign currency risks due to RMB-denominated assets and liabilities, which are subject to exchange controls - Credit risk is significant due to cash held in Chinese financial institutions not being insured by the government and unsecured accounts receivable[189][190] - The company has significant foreign currency risk as a majority of its operating activities, assets, and liabilities are denominated in RMB, which is subject to Chinese government exchange controls and is not freely convertible[193] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2022, with no material changes to internal control over financial reporting - The company's Certifying Officers concluded that disclosure controls and procedures were not effective as of the end of the period covered by the report[194] PART II. OTHER INFORMATION Legal Proceedings The company reported no legal proceedings during the period - None[198] Risk Factors No material changes to risk factors were reported from the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - There are no material changes to the risk factors described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[198] Unregistered Sales of Equity Securities and Use of Proceeds The company agreed to acquire Shanghai Yuanma Food and Beverage Management Co., Ltd. via a VIE structure, issuing 7,680,000 common shares, pending stockholder approval - The company agreed to issue 7,680,000 shares of common stock to acquire Yuan Ma via a VIE structure, with closing conditioned on stockholder approval[199][200] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[201] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[201] Other Information The company reported no other information - None[201] Exhibits The report includes required CEO and CFO certifications and Inline XBRL data files as exhibits - The report includes required certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2) and XBRL data files[203]