markdown [PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS](index=2&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) The unaudited condensed consolidated financial statements for the quarterly period ended June 30, 2022, show a significant increase in total assets to $274.6 million, driven by a rise in loans receivable, a shift from a net loss of $1.2 million in H1 2021 to a net income of $3.0 million in H1 2022, primarily due to increased revenue and interest income, with positive cash flow from operations and significant cash used in investing activities offset by financing from private placements and convertible notes [Unaudited Condensed Consolidated Balance Sheets](index=2&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2022, Total Assets increased to $274.6 million from $227.4 million at year-end 2021, primarily due to a $62.3 million increase in Loans Receivable, while Total Liabilities decreased to $28.3 million from $31.6 million, and Total Equity grew to $246.4 million from $195.9 million, mainly driven by private placements and net income Condensed Consolidated Balance Sheet Highlights (As of June 30, 2022 vs. December 31, 2021) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$274,621,691** | **$227,436,233** | | Loans receivable from third parties | $177,575,850 | $115,301,319 | | Goodwill | $67,475,493 | $71,028,283 | | **Total Liabilities** | **$28,257,438** | **$31,563,878** | | Total current liabilities | $24,249,276 | $26,799,020 | | **Total Equity** | **$246,364,253** | **$195,872,355** | [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) For the six months ended June 30, 2022, the company reported a net income of $3.0 million, a significant turnaround from a net loss of $1.2 million in the same period of 2021, driven by a 14% increase in total revenue to $101.8 million and a 74% increase in interest income to $8.8 million, with Q2 2022 net income at $1.4 million, up from $0.4 million in Q2 2021, despite a 10% decrease in revenue Statement of Operations Summary (For the Six Months Ended June 30) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | **Total Revenue** | **$101,842,511** | **$89,421,904** | | Gross Profit | $996,067 | $535,730 | | Total other income, net | $7,857,315 | $4,375,487 | | **Net Income (Loss)** | **$3,019,128** | **($1,180,420)** | | Basic and Diluted EPS | $0.01 | ($0.01) | Statement of Operations Summary (For the Three Months Ended June 30) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | **Total Revenue** | **$53,683,395** | **$59,839,647** | | Gross Profit | $439,129 | $373,116 | | **Net Income** | **$1,425,271** | **$357,856** | | Basic and Diluted EPS | $0.01 | $0.00 | [Unaudited Condensed Consolidated Statements of Changes in Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Total equity increased from $195.9 million at the end of 2021 to $246.4 million as of June 30, 2022, primarily driven by the issuance of common stock in private placements totaling $56.9 million and a net income of $3.0 million, partially offset by a $12.7 million loss from foreign currency translation adjustments - Key changes in equity for the six months ended June 30, 2022 include: - Issuance of common stock from private placements: **+$56.9 million** - Net income: **+$3.0 million** - Foreign currency translation adjustments: **-$12.7 million**[14](index=14&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2022, net cash provided by operating activities was $0.5 million, a significant improvement from a $3.8 million use of cash in the prior year period, with net cash used in investing activities increasing to $60.1 million mainly for loans to third parties, and net cash provided by financing activities at $59.9 million primarily from private placements and convertible notes, resulting in a slight decrease in cash and cash equivalents to $3.9 million Summary of Cash Flows (For the Six Months Ended June 30) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $469,839 | ($3,789,382) | | Net Cash Used in Investing Activities | ($60,102,346) | ($15,810,972) | | Net Cash from Financing Activities | $59,920,000 | $23,096,801 | | **Net (Decrease)/Increase in Cash** | **($385,652)** | **$4,196,502** | | Cash at End of Period | $3,925,416 | $6,896,515 | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's business in commodity trading and supply chain management in the PRC, outlining key accounting policies under U.S. GAAP, including an error correction related to a 2021 share-based payment, elaborating on significant financial items such as a substantial increase in loans receivable, convertible notes, capital transactions from private placements, and various risks including credit, liquidity, and foreign currency, with subsequent events including further settlement of convertible notes and a planned reverse stock split to maintain Nasdaq listing compliance - The company's business involves commodity trading and supply chain management services in the PRC. It recently incorporated several new subsidiaries for e-commerce and import/export[24](index=24&type=chunk) - An error in the Q1 2021 financial statements related to a **$1.7 million** share-based payment was identified and corrected in the current period's statements for the six months ended June 30, 2021[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - Loans receivable from third parties increased to **$177.6 million** as of June 30, 2022, from **$115.3 million** at year-end 2021. These loans carry an interest rate of **10.95%** per annum[44](index=44&type=chunk)[45](index=45&type=chunk) - The company entered into new convertible promissory note agreements and settled portions of existing ones, issuing common stock upon conversion. As of June 30, 2022, the net balance of convertible notes was **$4.4 million**[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) - In May 2022, the company raised **$11.42 million** by selling **57.1 million** shares of common stock at **$0.20 per share** in a private placement[70](index=70&type=chunk) - The company faces liquidity risk and a Nasdaq delisting risk due to its stock price falling below the **$1.00** minimum bid requirement. A reverse stock split was approved by the board to regain compliance, pending stockholder approval[99](index=99&type=chunk)[109](index=109&type=chunk)[111](index=111&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=30&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's two business lines: commodities trading and supply chain management, noting that for the first six months of 2022, revenue grew 14% to $101.8 million, driven by a strong commodity market, leading to a net income of $3.0 million versus a $1.2 million loss in the prior year, with the financial position strengthened by $59.9 million raised from private placements and convertible notes, while acknowledging challenges including intense competition, capital requirements, and temporary COVID-19 disruptions, but believing it has sufficient capital for the next 12 months [Overview](index=30&type=section&id=Overview) The company operates two primary business lines: commodities trading and supply chain management services, with the commodities trading business involving buying and selling non-ferrous metals like aluminum, copper, silver, and gold, and supply chain management services including distribution and other related services to support the trading business, generating $100.7 million in revenue from commodities trading and $1.15 million from supply chain services in the first half of 2022 - The company's two business segments are commodities trading (non-ferrous metals) and supply chain management services[114](index=114&type=chunk)[115](index=115&type=chunk) - Principal competitive factors in the non-ferrous metals trading business are price, product availability, quantity, service, and financing terms[118](index=118&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) For the six months ended June 30, 2022, total revenue increased by 14% to $101.8 million, and the company achieved a net income of $3.0 million, compared to a net loss of $1.2 million in the prior-year period, with growth driven by a 50% increase in third-party commodity sales and a 143% increase in supply chain services revenue, while for the second quarter, revenue decreased by 10% to $53.7 million, but net income grew 298% to $1.4 million, largely due to a 48% increase in interest income and lower operating expenses Comparison of Operations (Six Months Ended June 30, 2022 vs 2021) | Metric | 2022 | 2021 | Change % | | :--- | :--- | :--- | :--- | | Total Revenue | $101,842,511 | $89,421,904 | 14% | | Gross Profit | $996,067 | $535,730 | 86% | | Net Income (Loss) | $3,019,128 | ($1,180,420) | 356% | Comparison of Operations (Three Months Ended June 30, 2022 vs 2021) | Metric | 2022 | 2021 | Change % | | :--- | :--- | :--- | :--- | | Total Revenue | $53,683,395 | $59,839,647 | (10)% | | Gross Profit | $439,129 | $373,116 | 18% | | Net Income | $1,425,271 | $357,856 | 298% | - The increase in revenue for H1 2022 is attributed to a prosperous bulk market, rising commodity prices, and a strategic focus on business in the Hainan region, which offers supportive policies[137](index=137&type=chunk) [Cash Flows and Capital Resources](index=38&type=section&id=Cash%20Flows%20and%20Capital%20Resources) The company's operations are financed through cash flow, borrowings, and equity financing, generating $0.5 million in cash from operations in the first six months of 2022, a significant improvement from the $3.8 million used in the same period of 2021, while using $60.1 million in investing activities primarily for loans, and raising $59.9 million from financing activities including private placements and convertible notes, with management believing the company has sufficient capital to continue as a going concern for the next 12 months - The company raised a total of **$59.92 million** in gross proceeds from private placements and the sale of convertible notes during the first six months of 2022[148](index=148&type=chunk)[149](index=149&type=chunk) Cash Flow Summary (Six Months Ended June 30) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $469,839 | ($3,789,382) | | Net Cash Used in Investing Activities | ($60,102,346) | ($15,810,972) | | Net Cash from Financing Activities | $59,920,000 | $23,096,801 | [Impact of COVID-19](index=39&type=section&id=Impact%20of%20COVID-19) A wave of COVID-19 variants in China in early 2022, particularly in Shanghai, led to lockdowns that temporarily affected operations for about two weeks due to warehouse closures, however, as of June 30, 2022, business operations had not experienced any material or adverse interruptions, and management believes the financial condition was not materially impacted for the period, with the company continuing to monitor the situation - Operations in Shanghai were temporarily affected for about two weeks in early 2022 due to strict COVID-19 lockdown measures[156](index=156&type=chunk) - Management states that as of June 30, 2022, the business and financial conditions had not been materially adversely impacted by the resurgence of COVID-19[156](index=156&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=41&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section is not applicable for the reporting period - The company has indicated that this item is not applicable[164](index=164&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=41&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2022, due to material weaknesses including a lack of personnel with sufficient U.S. GAAP knowledge, inadequate controls over related-party transactions, and insufficient written policies for financial reporting, with no changes made to internal controls during the quarter that materially affected, or are likely to materially affect, the company's internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2022[165](index=165&type=chunk) - Material weaknesses identified include: - Lack of formal procedures for revenue recognition - Inadequate control over extensive related-party transactions - No accountant with adequate U.S. GAAP knowledge in the accounting department - Insufficient written policies for accounting and financial reporting[166](index=166&type=chunk)[167](index=167&type=chunk) - No changes were made to internal controls over financial reporting during the quarter ended June 30, 2022[169](index=169&type=chunk) [PART II. OTHER INFORMATION](index=42&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=42&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company reported no legal proceedings for the period - None[171](index=171&type=chunk) [ITEM 1A. RISK FACTORS](index=42&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's annual report on Form 10-K filed on March 16, 2022 - No material changes to risk factors from the annual report on Form 10-K filed March 16, 2022[171](index=171&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=42&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) During the quarter, the company engaged in significant unregistered sales of equity securities, issuing an unsecured convertible promissory note for $3.0 million in proceeds in May 2022, and entering into a securities purchase agreement to sell 57,100,000 shares of common stock at $0.20 per share, raising $11.42 million, with subsequent settlement of $500,000 of convertible notes by issuing over 2.5 million shares of common stock in July and August 2022 - On May 6, 2022, the company issued a convertible promissory note and received proceeds of **$3,000,000**[172](index=172&type=chunk) - On May 27, 2022, the company agreed to sell **57,100,000 shares** of Common Stock at **$0.20 per share**, receiving proceeds of **$11,420,000** in June 2022[173](index=173&type=chunk) - In July and August 2022, the company settled **$500,000** in convertible promissory notes by issuing a total of **2,557,477 shares** of common stock[173](index=173&type=chunk) [ITEM 5. OTHER INFORMATION](index=42&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The company reported no other information for the period - None[174](index=174&type=chunk) [ITEM 6. EXHIBITS](index=43&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, securities purchase agreements, convertible promissory notes, and officer certifications as required by the Sarbanes-Oxley Act - Exhibits filed include certifications from the CEO and CFO, and documents related to recent securities purchase agreements and convertible notes[176](index=176&type=chunk)
BAIYU (BYU) - 2022 Q2 - Quarterly Report