BAIYU (BYU) - 2021 Q4 - Annual Report

Part I Business Description TD Holdings, Inc. operates in China through its Commodities Trading and Supply Chain Services segments, engaging in non-ferrous metal trading and supporting logistics, while funding expansion through 2021 financing activities - The company's business is centered on two core segments: Commodities Trading Business (purchasing and selling non-ferrous metals) and Supply Chain Service Business (a one-stop service platform)[15] FY2021 Revenue Breakdown | Business Segment | Revenue (USD) | | :--- | :--- | | Commodities Trading | $197,954,015 | | Supply Chain Management Services | $3,180,227 | - The company utilizes a "Prepaid Model" where it secures purchase orders and down payments from customers before making prepayments to upstream suppliers, thereby managing inventory risk and generating margins from purchase discounts and sales mark-ups[57][58][59] - The company's business strategy for 2022 includes expanding the variety of traded commodities (ore, crude oil, coal) and expanding its business into Southeast Asia[67] - Throughout 2021, the company raised significant capital through various financing activities, including private placements in January, August, and November, registered direct offerings, and the issuance of convertible promissory notes[22][34][36][37][40] Risk Factors The company faces substantial risks from its volatile commodities trading, client concentration in supply chain services, operational weaknesses, potential Nasdaq delisting, and China's evolving regulatory environment - The commodities trading business is subject to risks such as effective management, integration challenges, and the cyclical and volatile nature of commodity prices[109][124] - A substantial portion of supply chain management revenue comes from a small number of clients, making the business vulnerable to the loss of any key client or downturns in their respective sectors (energy, material, industrial)[118][119][121] - The company has identified material weaknesses in its internal control over financial reporting as of December 31, 2021, which could lead to inaccurate financial reporting and loss of investor confidence[145][146] - The company faces risks of its common stock being delisted from Nasdaq due to failure to meet continued listing requirements, such as the minimum bid price rule[159][178] - Operations are concentrated in the PRC, exposing the company to risks from changes in China's economic, political, and legal systems, as well as currency exchange rate fluctuations[185][186][192] Property Description The company operates from leased principal executive offices in Shenzhen, PRC, under an agreement valid until December 2024, owning no real property - The company leases its principal executive office space in Shenzhen, PRC, under an agreement valid until December 31, 2024[195] Legal Proceedings The company is engaged in a lawsuit against Harrison Fund, LLC to recover a $1 million investment, for which a full impairment loss has been recognized - The company filed a lawsuit against Harrison Fund, LLC to recover a $1,000,000 investment made in May 2019. A full impairment loss has been recognized for this investment due to the pending legal proceeding[195][196] Part II Market for Common Equity and Related Stockholder Matters The company's common stock trades on NASDAQ under "GLG"; no dividends were paid in 2021 nor are planned, with earnings retained for growth, subject to PRC regulations - The company's common stock trades on the NASDAQ Capital Market under the ticker "GLG"[197] - No dividends were paid in 2021, and none are planned for the foreseeable future, with earnings being reinvested into the business. PRC regulations also restrict dividend payments from Chinese subsidiaries[198][199] Management's Discussion and Analysis (MD&A) FY2021 revenue surged 612% to $201.1 million due to commodity sales, yet gross profit declined 17%, leading to a $0.94 million net loss, while financing activities raised $64 million and investing activities used $71.5 million Results of Operations (FY2021 vs. FY2020) | Metric | FY 2021 | FY 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $201,134,242 | $28,268,801 | 612% | | Sales of commodity products | $197,954,015 | $24,496,643 | 708% | | Supply chain management services | $3,180,227 | $3,772,158 | (16)% | | Gross Profit | $3,008,613 | $3,628,330 | (17)% | | Operating Expenses | ($9,973,923) | ($3,035,598) | 229% | | Net Loss from Continuing Operations | ($940,357) | ($2,400,355) | (61)% | | Net Loss | ($940,357) | ($5,951,613) | (84)% | - The significant 612% increase in total revenue was mainly attributed to the prosperous global bulk market, increased commodity prices, and the company's expansion efforts in the Hainan region[214] - Selling, general, and administrative (SG&A) expenses increased by 168% to $8.1 million, primarily due to amortization of intangible assets ($3.9 million) and convertible promissory notes ($0.5 million)[220] Summary of Cash Flows (FY2021 vs. FY2020) | Cash Flow Activity | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $8,034,010 | $29,856,033 | | Net Cash Used in Investing Activities | ($71,520,955) | ($132,582,547) | | Net Cash from Financing Activities | $64,118,618 | $106,148,679 | - The company raised approximately $64 million in gross proceeds during 2021 from private placements, a registered direct offering, and the issuance of convertible notes to be used as working capital for business expansion[228][236] Controls and Procedures Management deemed disclosure controls ineffective as of December 31, 2021, citing material weaknesses in internal control due to U.S. GAAP expertise gaps and inadequate procedures, with a 2022 remediation plan outlined - Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2021[243] - Material weaknesses in internal control were identified, including a lack of accounting staff with adequate U.S. GAAP experience, insufficient formal procedures for revenue recognition and related-party transactions, and inadequate written policies for financial reporting[249][250] - Management's remediation plan for 2022 includes appointing a monitor for corporate governance, retaining additional independent directors, establishing an internal audit function, and providing more training to accounting staff[251][252] Part III Directors, Executive Officers and Corporate Governance The company's leadership includes CEO Renmei Ouyang and CFO Tianshi Yang, supported by a Board with three independent directors and fully independent Audit, Compensation, and Nominating committees Key Executive Officers and Directors | Name | Age | Position | | :--- | :--- | :--- | | Renmei Ouyang | 54 | Chief Executive Officer, President and Chairwoman | | Tianshi Yang | 32 | Chief Financial Officer, Director | | Xiangjun Wang | 49 | Director (Independent) | | Heung Ming (Henry) Wong | 52 | Director (Independent) | | Donghong Xiong | 54 | Director (Independent) | - The Board has three committees: Audit, Compensation, and Nominating and Governance, each composed entirely of independent directors[265] - Henry Heung Ming Wong is designated as the "audit committee financial expert" as defined by SEC rules[268] Executive Compensation In FY2021, CEO Renmei Ouyang received $600,000 in salary, while CFO Tianshi Yang received $51,174, with no stock awards granted to executives, and director compensation varied by cash or stock FY2021 Summary Compensation Table | Name and Principal Position | Fiscal Year | Salary ($) | Total ($) | | :--- | :--- | :--- | :--- | | Renmei Ouyang (CEO) | 2021 | 600,000 | 600,000 | | Tianshi Yang (CFO) | 2021 | 51,174 | 51,174 | | Wei Sun (Former CFO) | 2021 | 37,734 | 37,734 | FY2021 Director Compensation | Name | Fees earned in cash ($) | Stock awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | Xiangjun Wang | 10,000 | - | 10,000 | | Henry Heung Ming Wong | - | 8,300 | 8,300 | | Donghong Xiong | - | 3,804 | 3,804 | Security Ownership As of February 16, 2022, Shuxiang Zhang was the largest beneficial owner with 19.29% of common stock, while CEO Renmei Ouyang held 8.69%, and all officers and directors collectively owned 8.71% Beneficial Ownership as of Feb 16, 2022 | Name of Beneficial Owner | Number of Shares | Percent of Class | | :--- | :--- | :--- | | Shuxiang Zhang (10% stockholder) | 39,670,000 | 19.29% | | Renmei Ouyang (CEO) | 17,871,924 | 8.69% | | All officers and directors as a group | 17,921,924 | 8.71% | Related Party Transactions The company conducted significant related-party transactions, primarily with CEO family-controlled entities, reporting $24.0 million in revenues and $22.4 million in purchases in FY2021, with year-end balances due from related parties at $11.4 million - The company has numerous related parties, many of which are controlled by an immediate family member of the CEO, Renmei Ouyang[288][499] Balances with Related Parties (Year-End) | Balance Type | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Due from related parties | $11,358,373 | $55,839,045 | | Due to related parties | $21,174 | $7,346,021 | Transactions with Related Parties (Full Year) | Transaction Type | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Revenues from related parties | $24,049,999 | $18,384,617 | | Purchases from related parties | $22,442,812 | $16,744,094 | Principal Accountant Fees and Services For FY2021, Audit Alliance LLP billed the company $341,000, primarily for $339,000 in audit fees and $2,000 in audit-related fees, all pre-approved by the Audit Committee Accountant Fees (FY2021 vs. FY2020) | Fee Type | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Audit Fees | $339,000 | $208,500 | | Audit-related Fees | $2,000 | - | | Tax Fees | - | - | | All Other Fees | - | - | | Total | $341,000 | $208,500 | Part IV Exhibits and Financial Statement Schedules This section details all exhibits filed with the annual report, including corporate documents and certifications, noting the omission of financial statement schedules where information is otherwise provided - This section provides a comprehensive list of all exhibits filed with the 10-K, such as corporate governance documents, material agreements, and required certifications[303] Financial Statements and Supplementary Data Auditor's Report The auditor issued an unqualified opinion on the FY2021 consolidated financial statements, highlighting critical audit matters regarding the valuation of loans receivable and goodwill impairment testing due to significant management judgment - The auditor issued an unqualified opinion on the 2021 consolidated financial statements[312] - Critical Audit Matters identified were the valuation of loans receivable ($115.3 million from third parties, $11.4 million from related parties) and the impairment testing of goodwill ($71.0 million)[317][319][320] - The report emphasizes the significance of transactions and balances with related parties, noting they may not be on an arm's-length basis[316] Notes to Consolidated Financial Statements The notes detail the 2020 disposition of the car leasing business, the $102.6 million Qianhai Baiyu acquisition, significant 2021 financing activities, extensive related-party transactions, and various legal contingencies and risks - In August 2020, the company disposed of its used luxurious car leasing business (HC High Summit Limited), resulting in a net loss from disposal of $3.0 million[430][431][432] - In October 2020, the company acquired 100% of Qianhai Baiyu for approximately $102.6 million, recording $69.3 million in goodwill and $20.1 million in intangible assets (customer relationships)[436][437][438] - In 2021, the company issued three convertible promissory notes with a total principal of $7.21 million, which include beneficial conversion features that are amortized over their 12-month terms[464][465][466][467] - The company raised substantial equity in 2021 through private placements, including selling 15 million shares for $24.45 million in January and an aggregate of 35 million shares/units for $37.85 million in August/September[470][471]