BAIYU (BYU) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Unaudited financial statements for Q3 2021 show total assets at $218.8 million, revenues at $144.2 million, and equity at $190.7 million, driven by loan growth and capital raises Unaudited Condensed Consolidated Balance Sheets Total assets increased to $218.8 million by September 30, 2021, driven by a surge in loans receivable, while liabilities decreased and equity grew to $190.7 million Consolidated Balance Sheet Highlights (in USD) | Balance Sheet Item | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $218,785,528 | $167,178,482 | | Cash | $4,291,390 | $2,700,013 | | Loans receivable from third parties | $103,932,909 | $18,432,691 | | Due from related parties | $12,083,999 | $55,839,045 | | Total Liabilities | $28,129,542 | $47,149,256 | | Acquisition payable | $- | $15,384,380 | | Due to related parties | $22,878 | $7,346,021 | | Total Equity | $190,655,986 | $120,029,226 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Q3 2021 revenues surged 697% to $54.8 million, and nine-month revenues grew 1339% to $144.2 million, though gross profit declined and operating expenses rose, resulting in a narrowed net loss Q3 2021 vs Q3 2020 Performance (in USD) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Total Revenues | $54,773,806 | $6,871,353 | | Gross Profit | $1,973,754 | $3,156,708 | | Total Operating Expenses | ($2,367,798) | ($292,080) | | Net Income (Loss) Attributable to Stockholders | $457,615 | $546,801 | | Diluted EPS | $0.00 | $0.01 | Nine Months 2021 vs 2020 Performance (in USD) | Metric | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Total Revenues | $144,195,710 | $10,019,880 | | Gross Profit | $2,509,484 | $3,671,394 | | Total Operating Expenses | ($7,687,573) | ($1,032,660) | | Net (Loss) Attributable to Stockholders | ($722,805) | ($5,263,096) | | Diluted EPS | ($0.01) | ($0.12) | Unaudited Condensed Consolidated Statements of Changes in Equity Total equity grew from $120.0 million to $190.7 million by September 30, 2021, primarily due to the issuance of 50 million shares in private placements raising $62.3 million - Total equity increased by $70.6 million in the first nine months of 2021, reaching $190.7 million[15] - The company issued 50,000,000 shares of common stock in connection with private placements, raising $62.3 million[15] - Other significant equity activities included share-based payments for services ($1.8 million), issuance of stock from convertible note exercises ($2.2 million), and registered direct offerings ($2.2 million)[15] Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operations was $0.9 million for the nine months ended September 30, 2021, with $62.2 million used in investing activities and $62.1 million provided by financing, increasing cash to $4.3 million Summary of Cash Flows (Nine Months Ended Sep 30, in USD) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $941,931 | $2,372,520 | | Net Cash Used in Investing Activities | ($62,213,074) | ($83,141,021) | | Net Cash from Financing Activities | $62,125,911 | $81,428,147 | | Net Increase in Cash | $1,591,377 | $1,190,281 | | Cash at End of Period | $4,291,390 | $2,967,557 | - Major financing activities in 2021 included $57.9 million from private placements and $4.5 million from convertible notes[27] - The primary use of cash in investing activities was $99.0 million for loans to third parties, partially offset by collections of $13.5 million from third parties and $44.4 million from related parties[27] Notes to Consolidated Financial Statements The notes detail the company's business structure, accounting policies, and key financial items, including subsidiary expansion, a surge in loans receivable to $103.9 million, and significant capital raising activities Note 1. Organization and Business Description The company primarily conducts commodity trading and supply chain management in the PRC, expanding operations in 2021 through new subsidiaries like Hainan Jianchi and Yangzhou Baiyu - The company's primary business is commodity trading and supply chain management services in the PRC[29] - Several new subsidiaries were established in late 2020 and 2021 to expand the commodity trading and e-commerce business, including entities in Hainan and Yangzhou[29][31] Note 3. Loans Receivable from Third Parties Loans receivable from third parties surged to $103.9 million by September 30, 2021, from $18.4 million, with $99.0 million in new loans issued at 10.95% interest Loans Receivable from Third Parties (in USD) | Date | Amount | | :--- | :--- | | September 30, 2021 | $103,932,909 | | December 31, 2020 | $18,432,691 | - The company provided new loans of $99,030,244 and collected $13,463,633 during the nine months ended September 30, 2021[44] - Interest income from these loans was $6.86 million for the nine months ended September 30, 2021, up from $3.73 million in the prior-year period[45] Note 6. Convertible Promissory Notes In 2021, the company issued two unsecured convertible notes totaling $4.99 million principal for $4.5 million proceeds, carrying a 10% interest rate, with portions settled via common stock issuance - On January 6 and March 4, 2021, the company issued convertible notes with principal amounts of $1.67 million and $3.32 million, respectively, for total proceeds of $4.5 million[52][53] - During Q3 2021, the company settled portions of the notes by issuing a total of 2,729,463 shares of common stock[52][53] Note 7. Capital Transactions The company executed significant capital transactions in the first nine months of 2021, including selling 15 million shares for $24.45 million and 35 million shares plus 19 million units for $37.85 million in private placements - In January 2021, the company sold 15,000,000 shares in a private placement for proceeds of $24,450,000[58] - In August/September 2021, the company sold an aggregate of 35,000,000 shares and 19,000,000 units in private placements for total proceeds of $37.85 million[59] - As of September 30, 2021, there were 19,273,370 warrants outstanding and exercisable, with a weighted average exercise price of $1.43[67] Note 10. Related Party Transactions and Balances Related party transactions significantly increased in the first nine months of 2021, with revenues reaching $23.3 million and purchases $22.4 million, while balances due from related parties decreased to $12.1 million Balances with Related Parties (in USD) | Balance | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Due from related parties | $12,083,999 | $55,839,045 | | Due to related parties | $22,878 | $7,346,021 | Transactions with Related Parties (Nine Months Ended Sep 30, in USD) | Transaction | 2021 | 2020 | | :--- | :--- | :--- | | Revenue from related parties | $23,292,454 | $5,687,575 | | Purchases from related parties | $22,377,645 | $4,865,857 | Note 11. Discontinued Operation The used luxurious car leasing business was discontinued on August 28, 2020, resulting in a net loss of $3.54 million for the nine months ended September 30, 2020 - The used luxurious car leasing business was disposed of on August 28, 2020, and is classified as a discontinued operation[91] - This discontinued operation recorded a net loss of $3,541,807 for the nine months ended September 30, 2020[94] Note 12. Commitments and Contingencies The company has a short-term office lease of $7,710 per month and is involved in ongoing legal matters, including a lawsuit to recover a $1 million impaired investment from Harrison Fund - The company has a short-term operating lease with a monthly rent of about $7,710, expiring in August 2022[95] - A 2015 derivative action was settled and dismissed in July 2019[96][97] - The company is pursuing recovery of a $1,000,000 investment from Harrison Fund, LLC in a lawsuit filed in April 2020. The investment has been fully impaired due to uncertainty[104] Note 13. Risks and Uncertainties The company faces various risks, including credit, liquidity, and foreign currency risks from PRC operations, potential COVID-19 impacts, and industry-specific risks like commodity price fluctuations and seasonal demand - The company faces credit risk, liquidity risk, and foreign currency risk related to its operations in the PRC[106][107][108] - The COVID-19 pandemic is cited as a risk that could disrupt business operations, supply chains, and customer demand[111][112][113] - The commodity trading business is subject to seasonal fluctuations, with the first quarter typically being the weakest, and is affected by macroeconomic price volatility[116] Note 14. Subsequent Events Post-quarter, the company engaged in significant financing, including issuing a $2.0 million convertible note and a $45.5 million private placement of 65 million shares at $0.70 per share - On October 4, 2021, the company issued a new convertible note with a principal of $2.22 million for $2.0 million in proceeds[118] - In October and November 2021, the company settled convertible notes totaling $1.5 million by issuing over 3.2 million shares of common stock[119] - On November 5, 2021, the company agreed to a private placement to sell 65,000,000 shares for gross proceeds of $45.5 million[120] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's commodity trading business in the PRC, highlighting significant 2021 revenue growth driven by market conditions and strategic focus, alongside challenges from increased costs and bolstered liquidity from $64 million in equity financing Overview The company focuses on commodities trading and supply chain management in the PRC, facing challenges such as intense competition, China's economic slowdown, limited operating history, and high capital requirements - The company's primary business is trading non-ferrous metal products and providing supply chain management services in the PRC[123] - Key challenges include competition from large domestic providers, China's economic slowdown, a limited operating history (started in late 2019), and the capital-intensive nature of the business[125][126][127] Results of Operations Q3 2021 revenue surged 697% to $54.8 million, and nine-month revenue grew 1339% to $144.2 million, driven by market strength, though gross profit declined and SG&A expenses rose sharply due to amortization Three Months Ended Sep 30, 2021 vs 2020 (in USD) | Item | 2021 | 2020 | Change % | | :--- | :--- | :--- | :--- | | Total Revenue | $54,773,806 | $6,871,353 | 697% | | Gross Profit | $1,973,754 | $3,156,708 | (37)% | | SG&A Expenses | ($2,226,398) | ($292,080) | 662% | | Net Income from Continuing Ops | $457,615 | $3,535,917 | (87)% | Nine Months Ended Sep 30, 2021 vs 2020 (in USD) | Item | 2021 | 2020 | Change % | | :--- | :--- | :--- | :--- | | Total Revenue | $144,195,710 | $10,019,880 | 1339% | | Gross Profit | $2,509,484 | $3,671,394 | (32)% | | SG&A Expenses | ($5,851,131) | ($1,032,660) | 467% | | Net (Loss) from Continuing Ops | ($722,805) | ($1,728,362) | (58)% | - Revenue growth was driven by a prosperous global bulk market, increased commodity prices, and a strategic focus on the Hainan province[135][147] - The increase in SG&A expenses was mainly due to amortization of intangible assets ($2.9M) and convertible notes ($0.35M) in the first nine months of 2021, which were not present in the same period of 2020[153] Liquidity and Capital Resources The company primarily financed operations through equity, raising $64 million in gross proceeds in the first nine months of 2021, resulting in $103 million positive working capital and sufficient liquidity for the next 12 months - The company raised approximately $64 million in gross proceeds from various equity financing transactions in the first nine months of 2021[161] - As of September 30, 2021, the company had positive working capital of approximately $103 million[160] Cash Flow Summary (Nine Months Ended Sep 30, in USD) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $941,931 | $2,372,520 | | Net Cash Used in Investing Activities | ($62,213,074) | ($83,141,021) | | Net Cash from Financing Activities | $62,125,911 | $81,046,593 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section is not applicable for the company as a smaller reporting company - Not applicable[174] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were not effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were not effective as of September 30, 2021[175] - No changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls were identified during the quarter[177] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company provides updates on several legal matters, including a settled 2015 derivative action, a vacated 2017 arbitration award, and an ongoing 2020 lawsuit to recover a $1 million impaired investment - A 2015 derivative action was settled and dismissed in July 2019[179][180] - A 2017 arbitration award of $1.4 million in the company's favor against Sorghum was vacated by the court, and the company withdrew its appeal[180][182] - A 2020 lawsuit against Harrison Fund, LLC to recover a $1,000,000 investment is ongoing. The company has applied a full impairment against this investment due to uncertainty[186][187] ITEM 1A. RISK FACTORS No material changes to risk factors previously disclosed in the annual report on Form 10-K filed on June 4, 2021 - There have been no material changes to the risk factors disclosed in the annual report on Form 10-K filed with the SEC on June 4, 2021[188] Other Part II Items The report indicates no information for Item 2, Item 3, Item 4, and Item 5 of Part II - Item 2, 3, 4, and 5 of Part II are reported as 'None' or 'Not applicable'[188] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, securities purchase agreements, and officer certifications - The report includes a list of all exhibits filed, such as the Certificate of Incorporation, Bylaws, various agreements, and Sarbanes-Oxley certifications[190]