BAIYU HOLDINGS, INC. Overview
As of
Commodities trading business
The commodity trading business primarily involves purchasing non-ferrous metal product, such as aluminium ingots, copper, silver, and gold, from metal and mineral suppliers and then selling to customers. In connection with the Company's commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help metal and mineral suppliers to sell their metal products, the Company launched its supply chain management service inDecember 2019 . The Company primarily generates revenues from bulk non-ferrous commodity products, and from providing related supply chain management services in the PRC. For the nine months endedSeptember 30, 2021 , the Company recorded revenue of$141,679,791 from commodities trading business and$2,515,919 from commodity distributions services and other related services, respectively.
For the three months ended
The Company sources bulk commodity products from non-ferrous metal and mines or its designated distributors and then sells to manufactures who need these metals in large quantity. The Company works with suppliers in the sourcing of commodities. Major suppliers include various metal and mineral suppliers such asKunsteel Group ,Baosteel Group , Aluminum Corporate ofChina Limited ,Yunnan Benyuan , Yunnan Tin, and Shanghai Copper. Potential customers include large infrastructure companies such as China National Electricity,Datang Power ,China Aluminum Foshan International Trade,Tooke Investment (China ),CSSC International Trade Co., Ltd. ,Shenye Group , and Keliyuan. Competition The Company mainly competes against other large domestic commodity metal product trading service providers such as Xiamen International Trade andYijian Shares . Currently, the principal competitive factors in the non-ferrous metals commodities trading business are price, product availability, quantity, service, and financing terms for purchases and sales of commodities.
Applicable Government Regulations
The Company has obtained all material approvals, permits, licenses and certificates required for our metal product trading operations, including registrations from the local business and administrative department authorizing the purchase of raw materials.
Key Factors Affecting Our Results of Operation
The commodities trading industry is also experiencing decreasing demand as a
result of
We have a limited operating history having just started our commodities trading business in lateNovember 2019 . We believe our future success depends on our ability to significantly increase sales as well as maintain profitability from our operations. Our limited operating history makes it difficult to evaluate our business and future prospects. You should consider our future prospects in light of the risks and challenges encountered by a company with a limited operating history in an emerging and rapidly evolving industry. These risks and challenges include, among other things, ? our ability to continue our growth as well as maintain profitability;
? preservation of our competitive position in commodities trading industry in
China ; ? our ability to implement our strategies and make timely and effective responses to competition and changes in customer preferences; and ? recruitment, training and retaining of qualified managerial and other personnel.
Our business requires a significant amount of capital in large part due to needing to purchase bulk volume of commodities, and expand our business in existing markets and to additional markets where we currently do not have operations.
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Recent Developments
(1) Settlement and Mutual Release Agreement
The Company previously entered into a Common Stock Purchase Agreement withWhite Lion Capital, LLC , aNevada limited liability company (the "Investor"), which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Investor is committed to purchase up to 15,700,000 shares of the Company's common stock, with an aggregate offorty million dollars ($40,000,000 ) from time to time during a certain commitment period as defined in the Purchase Agreement. OnSeptember 13, 2021 , the Company entered into a Settlement and Mutual Release Agreement (the "Settlement Agreement") with the Investor. Pursuant to which, among other terms, the Company and the Investor agreed on lowering the floor price of the purchase notice to$1.00 and extending the commitment period toDecember 31, 2022 .
(2) Convertible Note Issuance
OnOctober 4, 2021 , the Company entered into a securities purchase agreement withAtlas Sciences, LLC , aUtah limited liability company, pursuant to which the Company issued the Investor an unsecured promissory note onOctober 4, 2021 in the original principal amount of$2,220,000 , convertible into shares of the Company's common stock, for$2,000,000 in gross proceeds.
The Note bears interest at a rate of 10% per annum compounding daily. All
outstanding principal and accrued interest on the Note will become due and
payable twelve months after the purchase price of the Note is delivered by
Purchaser to the Company. The Note includes an original issue discount of
(3) Settlement of Convertible Notes
The Company settled convertible notes of$250,000 onOctober 15, 2021 ,$400,000 onOctober 26, 2021 ,$100,000 onOctober 29, 2021 ,$350,000 onNovember 1, 2021 and$400,000 onNovember 9, 2021 , and issued 525,652, 875,350, 218,838, 765,931, and 875,350 shares of the Company's common stock onOctober 18, 2021 ,October 28, 2021 ,November 2, 2021 ,November 3, 2021 , andNovember 9, 2021 ,
respectively.
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(4) November Private Placement
OnNovember 5, 2021 , the Company entered into a certain securities purchase agreement with Mr.Shuxiang Zhang andHuiwen Hu , affiliates of the Company, and certain other non-affiliate purchasers whom are non-U.S. Persons, pursuant to which the Company agreed to sell an aggregate of 65,000,000 shares of its common stock, at a per share purchase price of$0.70 . The gross proceeds to the Company from the Common Stock Offering will be$45.5 million . SinceMs. Hu andMr. Zhang are affiliates of the Company, the Common Stock Offering has been approved by the Audit Committee of the Board of Directors of the Company as well as the Board of Directors of the Company. Three Months EndedSeptember 30, 2021 as Compared to Three Months EndedSeptember 30, 2020 For the Three Months Ended September 30, Change 2021 2020 Amount % Revenues
Commodity products - related parties
$ 407,715 43 % Commodity products - third parties 51,364,489 2,722,836 48,641,653 1786 % Supply chain management services - related parties - 2,041,570 (2,041,570 ) (100 )% Supply chain management services - third parties 2,043,494 1,148,839 894,655 78 % Total Revenue 54,773,806 6,871,353 47,902,453 697 % Cost of revenue - Commodity product sales - related parties (1,429,486 ) (3,609,639 ) 2,180,153 (60 )% - Commodity product sales - third parties (51,358,653 ) (88,543 ) (51,270,110 ) 57904 % - Supply chain management services - third parties (11,913 ) (16,463 ) 4,550 (28 )% Total cost of revenue (52,800,052 ) (3,714,645 ) (49,085,407 ) 1321 % Gross profit 1,973,754 3,156,708 (1,182,954 ) (37 )% Operating expenses Selling, general, and administrative expenses (2,226,398 ) (292,080 )
(1,934,318 ) 662 %
Share-based payment for service (141,400 ) - (141,400 ) 100 % Total operating cost and expenses (2,367,798 ) (292,080 )
(2,075,718 ) 711 %
Other income (expenses), net Interest income 1,809,398 1,836,016 (26,618 ) (1 )% Interest expenses 100,294 (15,164 ) 115,458 (761 )% Amortization of beneficial conversion feature relating to issuance of convertible notes (619,025 ) - (619,025 ) 100 % Other income (expense), net 251,014 - 251,014 100 % Total other income (expenses), net 1,541,681 1,820,852
(279,171 ) (15 )%
Net Income (Loss) From Continuing Operation Before Income Taxes 1,147,637 4,685,480
(3,537,843 ) (76 )%
Income tax expenses (690,022 ) (1,149,563 ) 459,541 (40 )%
Net Income (Loss) From Continuing
Operation 457,615 3,535,917 (3,078,302 ) (87 )%
Net Loss from Discontinuing Operation - (2,989,116 )
2,989,116 (100 )%
Net Income (Loss) $ 457,615 $ 546,801 $ (89,186 ) (16 )%
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Revenue
For the three months endedSeptember 30, 2021 , we generate revenue from two sources, including (1) revenue from sales of commodity products, and (2) revenue from supply chain management services. Total revenue increased by$47,902,453 or 697 %, from$6,871,353 for the three months endedSeptember 30, 2020 to$54,773,806 for the three months endedSeptember 30, 2021 , among which revenue from commodity trading and supply chain management accounted for 96.3% and 3.7% of our total revenue for the three months endedSeptember 30, 2021 . For the three months endedSeptember 30, 2020 , revenue from commodity trading and supply chain management accounted for 53.6% and 46.4% of our total revenue for the three months endedSeptember 30, 2020 . The increase is mainly due to the prosperous bulk market all over the world. An obvious increase in commodity price and growing demand drive more frequent transactions occurred during the three quarters of 2021. Since 2021, the Company put more emphasis on its business inHainan province which was able to obtain a competitive and supportive policy and generates more revenue from customers in theHainan region. The Company made efforts to explore competitive - vendors inHainan province to meet the demands of lower transportation cost and time cost, meanwhile our long term positive image in the commodity products industry enhanced our comprehensive competitive support from local trade associates.
(1) Revenue from sales of commodity products
For the three months endedSeptember 30, 2021 and 2020, the Company sold non-ferrous metals to twelve customers at fixed prices, and earned revenues when the product ownership was transferred to its customers. The Company earned revenues of$52,730,312 from sales of commodity products for the three months endedSeptember 30, 2021 , among which,$1,365,823 generated from the related party, compared with$958,108 from sales of commodity products for the same period in 2020.
(2) Revenue from supply chain management services
In connection with the Company's commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help metal and mineral suppliers sell their metal products, the Company launched its supply chain management service business inDecember 2019 , which primarily consisted of loan recommendation services and commodity distribution services. For the three months endedSeptember 30, 2020 , the Company provided commodity distribution services to customers.
Commodity distribution service fees
The Company utilizes its strong sales and marketing expertise and customer network to introduce customers to large metal and mineral suppliers, and facilitate the metal product sales between the suppliers and the customers. The Company merely acts as an agent in this type of transaction and earns a commission fee based on the percentage of volume of metal products that customers purchase. Commodity distribution service fees are recognized as revenue when the Company successfully facilitates the sales transactions between the suppliers and the customers. For the three months endedSeptember 30, 2021 , the Company earned commodity distribution commission fees of$2,043,494 from twenty two third-party customers and the Company earned commodity distribution commission fees of$1,148,839 and$2,041,570 from facilitating such sales transactions with three third party customers and three related party customers for the same period in 2020. Cost of revenue Our cost of revenue primarily includes cost of revenue associated with commodity product sales and cost of revenue associated with management services of supply chain. Total cost of revenue increased by$49,085,407 or 1321% from$ 3,714,645 for the three months endedSeptember 30, 2020 to$52,800,052 for the three months endedSeptember 30, 2021 , primarily due to an increase of$51,270,110 in cost of revenue associated with commodity product sales from the third party. The cost of revenue increased is in line with the growth of revenue. 26
Cost of revenue associated with commodity trading
Cost of revenue primarily consists of purchase costs of non-ferrous metal products. For the three months endedSeptember 30, 2021 , the Company purchased non-ferrous metal products of$51,358,653 from eleven third party vendors and$1,429,486 from one related party vendors compared with$3,609,639 from two related party suppliers for the three months endedSeptember 30, 2020 .
Selling, general, and administrative expenses
Selling, general and administrative expenses increased from$292,080 for the three months endedSeptember 30, 2020 to$2,226,398 for the three months endedSeptember 30, 2021 , representing an increase of$1,934,318 or 622%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expense, amortizations of intangible assets and convertible notes, professional service fees and finance offering related fees. The increase was mainly attributable to 1) amortization of intangible assets of$1,010,061 and, 2) amortization of convertible notes of$ 190,667 for the three months endedSeptember 30,2021 while no such issuance for the three months
endedSeptember 30, 2020 . Interest income Interest income was primarily generated from loans made to third parties and related parties. For the three months endedSeptember 30, 2021 , interest income was$1,809,398 , representing an decrease of$26,618 , or 1% from$1,836,016 for the three months endedSeptember 30, 2020 .
Amortization of beneficial conversion feature and relative fair value of warrants relating to issuance of convertible notes
For the three months ended
For the three months ended
Net loss from continuing operation
As a result of the foregoing, net income for the three months endedSeptember 30, 2021 was$457,615 , representing an decrease of$ 3,078,302 from net income of$3,535,917 for the three months endedSeptember 30, 2020 .
Net loss from discontinued operations
During the three months endedSeptember 30, 2020 , the net loss from discontinued operations was$2,989,362 from discontinued operations of used luxurious car leasing business. 27 Nine Months EndedSeptember 30, 2021 as Compared to Nine Months EndedSeptember 30, 2020 For the Nine Months Ended September 30, Change 2021 2020 Amount % Revenues
Commodity products - related parties
$ 19,717,045 551 % Commodity products - third parties 118,387,337 2,722,836 115,664,501 4248 % Supply chain management services - related parties - 2,112,166 (2,112,166 ) (100 )% Supply chain management services - third parties 2,515,919 1,609,469 906,450 56 % Total Revenue 144,195,710 10,019,880 134,175,830 1339 % Cost of revenue Commodity product sales - related parties (23,347,003 ) (4,865,857 ) (18,481,146 ) 380 % Commodity product sales - third parties (118,323,668 ) (1,458,212 ) (116,865,456 ) 8014 % Supply chain management services - third parties (15,555 ) (24,417 ) 8,862 (36 )% Total cost of revenue (141,686,226 ) (6,348,486 ) (135,337,740 ) 2132 % Gross profit 2,509,484 3,671,394 (1,161,910 ) (32 )% Operating expenses Selling, general, and administrative expenses (5,851,131 ) (1,032,660 ) (4,818,471 ) 467 % Share-based payment for service (1,836,442 ) - (1,836,442 ) 100 % Total operating cost and expenses (7,687,573 ) (1,032,660
) (6,654,913 ) 644 %
Other income (expenses), net Interest income 6,854,491 3,736,079 3,118,412 83 % Interest expenses (182,954 ) (69,644 ) (113,310 ) 163 % Amortization of beneficial conversion feature relating to issuance of convertible notes (619,025 ) (3,400,000 ) 2,780,975 (82 )% Amortization of relative fair value of warrants relating to issuance of convertible notes - (3,060,000 ) 3,060,000 (100 )% Other income (expense), net (135,344 ) -
(135,344 ) 100 %
Total other expenses, net 5,917,168 (2,793,565 ) 8,710,733 (312 )%
Loss Before Income Taxes 739,079 (154,831 ) 893,910 (577 )%
Income tax expenses (1,461,884 ) (1,573,531 ) 111,647 (7 )%
Net income (Loss) From Continuing
Operation (722,805 ) (1,728,362 ) 1,005,557 (58 )%
Net Loss From Discontinuing Operation - (3,541,807) 3,541,807 (100 )% Net Income (Loss)$ (722,805 ) $ (5,270,169 ) $ 4,547,364 (86 )% 28 Revenue
For the nine months endedSeptember 30, 2021 , we generate revenue from the following two sources, including (1) revenue from sales of commodity products and (2) revenue from supply chain management services. Total revenue increased by$134,175,830 or 1339%, from$10,019,880 for the nine months endedSeptember 30, 2020 to$144,195,710 for the nine months endedSeptember 30, 2021 , among which revenue from commodity trading, supply chain management and chain management services for 98.3% and 1.7%, respectively, of our total revenue for the nine months endedSeptember 30, 2021 . The increase is mainly due to the prosperous bulk market all over the world. An obvious increase in commodity price and growing demand drive more frequent transactions occurred during the three quarters of 2021. Since 2021, the Company put more emphasis on its business inHainan which was able to obtain a competitive and supportive policy and generates more revenue from customers in theHainan region. The Company made efforts to explore competitive upstream vendors inHainan to meet the demands of lower transportation cost and time cost, meanwhile our long term positive image in the commodity products industry enhanced our comprehensive competitive support from local trade associates.
(1) Revenue from sales of commodity products
For the nine months endedSeptember 30, 2021 , the Company sold non-ferrous metals to three related party customers and twenty one third party customers at fixed prices, and earned revenues when the product ownership was transferred to its customers. The Company earned revenues of$141,679,791 from sales of commodity products compared with$6,298,245 for the same period in 2020.
(2) Revenue from supply chain management services
In connection with the Company's commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help metal and mineral suppliers sell their metal products, the Company launched its supply chain management service business inDecember 2019 , which primarily consisted of loan recommendation services and commodity distribution services.
Commodity distribution service fees
The Company utilizes its strong sales and marketing expertise and customer network to introduce customers to large metal and mineral suppliers, and facilitate the metal product sales between the suppliers and the customers. The Company merely acts as an agent in this type of transaction and earns a commission fee based on the percentage of volume of metal products that customers purchase. Commodity distribution service fees are recognized as revenue when the Company successfully facilitates the sales transactions between the suppliers and the customers. For the nine months endedSeptember 30, 2021 , the Company earned commodity distribution commission fees of$2,515,919 from third party vendors compared with commission fees of$2,112,166 from six third-party customers and distribution service fees of$1,609,469 from three related party customer for the nine months ended in 2020. Cost of revenue Our cost of revenue primarily include cost of revenue associated with commodity product sales, cost of revenue associated with management services of supply chain and cost of operating lease. Total cost of revenue increased by$135,337,740 or 2132% from$6,348,486 for the nine months endedSeptember 30, 2020 to$141,686,226 for the nine months endedSeptember 30, 2021 , primarily due to an increase of$135,346,602 in cost of revenue associated with commodity product sales. The cost of revenue increased is accordance to the increase
in sales.
Cost of revenue associated with commodity trading
Cost of revenue primarily consists of purchase costs of non-ferrous metal products.
For the nine months ended
For the nine months endedSeptember 30, 2020 , the Company purchased non-ferrous metal products of$1,458,212 from one third party vendor and$4,865,857 from three related party vendor. 29
Selling, general, and administrative expenses
Selling, general and administrative expenses increased from$1,032,660 for the nine months endedSeptember 30, 2020 to$5,851,131 for the nine months endedSeptember 30, 2021 , representing an increase of$4,818,471 , or 467%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expense, amortizations of intangible assets and convertible notes, professional service fees and finance offering related fees. The increase was mainly attributable to 1) amortization of intangible assets of$2,905,932 and, 2) amortization of convertible notes of$354,000 for the nine months endedSeptember 30, 2021 while no such issuance for the nine months
endedSeptember 30, 2020 .
Share-based payment for service
OnMarch 4, 2021 , the Company issued 750,000 fully-vested warrants with an exercise price of$0.01 , with a five-year life, to an agent who was engaged to complete the warrant waiver and exercise agreements. The Company applied Black-Scholes model and determined the fair value of the warrants to be$1,695,042 million . Significant estimates and assumptions used included stock price onMarch 4, 2021 of$2.27 per share, risk-free interest rate of one year of 0.08%, life of 5 years, and volatility of 71.57% for the nine months endedSeptember 30, 2021 .
On
For the nine months ended
Interest income Interest income was primarily generated from loans made to third parties and related parties. For the nine months endedSeptember 30, 2021 , interest income was$6,854,491 representing an increase of$3,118,412 , or 83% from$3,736,079 for the nine months endedSeptember 30, 2020 . The increase was primarily due to loans made to Yunfeihu for the three months endedSeptember 30, 2021 , for the nine months endedSeptember 30, 2021 ,$3,795,391 was attributed to related party and$3,059,100 was generated from third party vendors.
Amortization of beneficial conversion feature and relative fair value of warrants relating to issuance of convertible notes
For the nine months ended
For the nine months endedSeptember 30, 2020 , the item represented the full amortization of beneficial conversion feature of$3.4 million and amortization of relative fair value of warrants of$3.06 million relating to the convertible notes which was exercised inMay 2020 .
Net loss from continuing operation
As a result of the foregoing, net loss for the nine months ended
Net loss from discontinued operations
During the nine months endedSeptember 30, 2020 , the net loss from discontinued operations was$3,541,807 from discontinued operations of used luxurious car leasing business.
For details of discontinued operations, please refer to Note11.
Cash Flows and Capital Resources
We have financed our operations primarily through shareholder contributions, cash flow from operations, borrowings from third parties and related parties, and equity financing through private placement and public offerings of our
securities.
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As reflected in the accompanying unaudited condensed consolidated financial statements, for the nine months endedSeptember 30, 2021 , the Company reported cash inflows of$ 941,931 from operating activities. As ofSeptember 30, 2021 , the Company positive working capital of about$103 million . During the nine months endedSeptember 30, 2021 , the Company entered into additional private placement agreements with certain private investors and issued 15,000,000 shares of common stock at$1.63 per share for$24,450,000 , issued 16,000,000 shares of common stock at$1.00 per share for$16,000,000 , and issued 19,000,000 units (one unit contain of one share of common stock and one warrant) at$1.15 per share for$21,850,000 , among which$17,427,941 was received inSeptember 2021 , and$4,422,059 was received inOctober 2021 . And the Company sold unsecured senior convertible promissory notes ("Notes") in the aggregate principal amount of$4,990,000 and also sold to certain investor and issued 1,353,468 shares for aggregate gross proceeds of$2.62 million .
The total gross proceeds from these transactions were
Based on the foregoing capital market activities, the management believes that the Company will continue as a going concern in the following 12 months.
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