BAIYU (BYU) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's unaudited statements show increased assets and liabilities, a net loss of $3.7 million for the nine-month period, and a retroactive 50-for-1 stock split Consolidated Balance Sheets | | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $415,212,322 | $363,097,798 | | Total Liabilities | $70,774,038 | $65,123,629 | | Total Equity | $344,438,284 | $297,974,169 | Consolidated Statements of Operations | | For the Nine Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2022 | | :--- | :--- | :--- | | Total Revenue | $103,001,660 | $139,731,066 | | Gross Profit (Loss) | ($146,946) | $876,285 | | Net Income (Loss) | ($3,707,295) | $4,323,050 | | Basic EPS | ($1.21) | $4.71 | Consolidated Statements of Cash Flows | | For the Nine Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $1,053,819 | $3,604,608 | | Net Cash Used in Investing Activities | ($64,651,465) | ($63,248,744) | | Net Cash from Financing Activities | $56,004,311 | $59,889,728 | - On October 30, 2023, the Company completed a 50-for-1 reverse stock split, with all share and per-share amounts retroactively restated[7][9][15] Notes to Consolidated Financial Statements Notes detail the PRC-based business, accounting policies, a significant rise in loans receivable, and material weaknesses in internal controls - The company, renamed BAIYU Holdings, Inc. in October 2023, primarily engages in commodity trading and supply chain management in the PRC[26] - Loans receivable from third parties increased significantly to $201.96 million as of September 30, 2023, from $143.17 million at year-end 2022[41] - The company holds $155.4 million in goodwill, which was not impaired, and $46.6 million in net intangible assets[48][49][51] - Several convertible promissory notes were settled through the issuance of common stock during 2023[65][66] - Subsequent to the quarter, the company effected a 50-for-1 reverse stock split and began trading under the new ticker 'BYU'[104][105][106] - Management identified material weaknesses in internal controls, citing a lack of personnel with U.S. GAAP expertise and inadequate formal procedures[157][158] Management's Discussion and Analysis (MD&A) Management attributes a 26% nine-month revenue decline and a shift to a $3.7 million net loss to China's economic slowdown and higher SG&A expenses Results of Operations Revenue declined 10% in Q3 and 26% over nine months YoY, turning a prior-year profit into a $3.7 million net loss due to lower sales and higher SG&A Quarterly Performance (Q3 2023 vs Q3 2022) | | Q3 2023 | Q3 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $33,911,726 | $37,888,555 | (10)% | | Gross Profit (Loss) | ($23,237) | ($119,782) | (81)% | | Net Income | $679,658 | $1,303,922 | (48)% | Nine-Month Performance (9M 2023 vs 9M 2022) | | 9M 2023 | 9M 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $103,001,660 | $139,731,066 | (26)% | | Gross Profit (Loss) | ($146,946) | $876,285 | (117)% | | Net Income (Loss) | ($3,707,295) | $4,323,050 | (186)% | - The 26% revenue decrease for the nine-month period was attributed to COVID-19 impacts and RMB depreciation against the USD[133] - SG&A expenses increased by 132% YoY for the nine-month period, driven by a $3.06 million rise in intangible asset amortization[139] Liquidity and Capital Resources The company maintained liquidity through $56.0 million in financing activities, offsetting cash used in investing and ensuring sufficient working capital | Cash Flow Summary (9M 2023 vs 9M 2022) | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $1,053,819 | $3,604,608 | | Net Cash Used in Investing Activities | ($64,651,465) | ($63,248,744) | | Net Cash Provided by Financing Activities | $56,004,311 | $59,889,728 | - Financing activities included $42.35 million from a private placement and proceeds from a direct offering and convertible notes[143][149] - Investing activities were dominated by a net disbursement of $64.6 million in loans to third parties[148] - The company reported positive working capital of $192 million and believes it can continue as a going concern[142][143] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to identified material weaknesses in internal financial reporting - Disclosure controls and procedures were deemed ineffective as of September 30, 2023[156] - Material weaknesses were identified, including a lack of U.S. GAAP expertise and insufficient formal accounting policies and procedures[157][158] - No material changes were made to internal controls during the quarter[160] PART II. OTHER INFORMATION Other Information The company reports no material changes to risk factors and details the issuance of common stock from convertible note conversions - There were no material changes to the risk factors disclosed in the company's annual report on Form 10-K[162] - The company settled various convertible promissory notes by issuing common stock during the first nine months of 2023[163][164] - The company reports no legal proceedings, defaults upon senior securities, or other material information for the period[162][165]